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Plastics Capital – with trading conditions “generally good”, what of my previously cautious stance?

By Steve Moore | Monday 13 February 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Niche plastics products manufacturing group, Plastics Capital (PLA) has updated that it “continues to trade in line with market expectations” and that “trading conditions are generally good”. Should I thus alter my previous cautious stance?

The update notes that “bearings and mandrel sales were strong during Q3” (to end December), though in the company’s films division “Palagan has experienced some weakness in trading as it made important changes” - these including the introduction of new films and it anticipated that it will take another 6-12 months to conclude this transitional phase.

However, overall group Q3 revenues “were ahead of expectations”, though increased investment in sales, marketing and new product development was noted to see “profits for the current financial year remain on track to meet market expectations”.

Those expectations are for earnings per share of circa 12p and a dividend per share of 4.6p – suggesting at a current 123.5p share price – a price/earnings multiple just into double figures and dividend yield of 3.7%. These look quite attractive, though there is then also debt (a net £15.1 million at the half-year stage, more than 42p per current share) to factor in.

The company adds “we have also had some excellent new project successes which we expect will enter production in upcoming years and which have replenished the new business pipeline” - and the outlook does seem more encouraging than when I previously wrote. Ahead of full-year results detail, on the watchlist.

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