Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Plastics Capital (LON:PLA) – not as bad as feared; debt marginally higher but cash flow solid

The AIM quoted niche plastics products group issued a ‘mixed’ trading update for the year ending 31st March 2009.

Full year turnover is now anticipated to be not less than £28 million (that’s ahead of initial broker estimates) with underlying profit before tax for the year to 31 March 2009 to be ‘not less than’ £2 million, after a £1m charge for hedging costs in the year due to sterling depreciation against the dollar. The last sponsored research not from 7th April estimated pre-tax of £2.68m and eps of 10p – I assume they forgot to allow for those hedging costs!

Net bank debt is expected to be £19 million which appears to be £1m higher than at the interim stage. Since the last trading update, group margins have remained firm but volumes have been weak in all businesses. Even the Rotating Parts which had previously weathered storm has recently been impacted by the collapse in international trade for manufactured products. Ironically it’s the UK focused business involved in packaging film that has performed well and only suffered a relatively modest volume decline over the last 12 months, although this trend did worsen somewhat in the final quarter of the financial year.

Cost reduction measures continue to be implemented across the Group and management reported that operating cash flow has remained solid.

As expected management remains as up-beat as ever commenting that customer loyalty remains high and that are winning new business in all areas – clearly these new business wins are not sufficient to maske up for all the other losses!

The share price has suffered badly over the last few months (down 42% in 2009), clearly in anticipation of dreadful news, and actually got a small boost following the announcement, albeit on very small volume.

Of greatest concern to many will be the debt burden and it is disappointing to note that debt has increased, despite the ‘solid’ operating cash flow!


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