Polypipe: The name says it all; plastic pipes
for all is the core product area. For those with a long memory, the company was
a well-regarded share when it was bought by IMI in 1999. Now it is back, after
a period in private equity/venture capital hands. These results are for the
year to 31st December 2014, the first part of which was before
April’s IPO. Revenue was up 9%, underlying pre-tax profits up 53% at £37.6m,
with adjusted eps of 16.11p and a total dividend of 4.5p. Against operating
profits of £46.3m, net debt was down 9% at a supportable £76.9m and there is no
defined benefit pension scheme to worry about. Cash flow conversion was strong
at 103.7%. Being predominantly a UK business, the good state of the UK house
building industry is helpful, with Polypipe commenting that the market upswing
is spreading outside just the major south-east based groups. The immediate
expansion drive is to increase exports into the Middle East, which they say is
going well and to improve results in France, where economic stagnation is a
hindrance. At home, the General Election in May is a potential stumbling block
this year, but the group point out that all the major parties have favourable
policies in their markets, so at worse any hiatus should be short-lived.
Whoever wins, interest rates are set to remain low (or even go lower?) so the
macro-economic backdrop is benign, although their biggest worry would be a significant
turn upwards in raw material prices.
The group
comments that, with a strong balance sheet and good liquidity there is
“significant headroom to increase payback capital”, which is encouraging for
income investors. The standard dividend policy is to pay out at least 40% of
net earnings, split one-third/two-thirds between interim and final. So with a
fair wind 19p of eps for this year looks very attainable, which at 264p is a PE
of 13.9x. A 40% payout would be a basic dividend of 7.6p, for a yield of 2.9%.
These do not look wildly cheap valuations, but this could be a slow-burner that
over time delivers good total returns for the patient investor. Just for now though, it is worth remembering that management share
lock ups have expired so they may well be sellers. (Neil Cumming,
27th March 2015)
These comments are not a personal
recommendation to deal. Any investments can fall as well as rise in value, so
you could get back less than you invest. I may have a financial interest in
some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk Twitter: @DividendPower
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