Polypipe — Meeting management growth expectations

Genuit Group (LN: GEN)

Last close As at 27/03/2024

283.50

−14.50 (−4.87%)

Market capitalisation

GBP706m

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Research: Industrials

Polypipe — Meeting management growth expectations

The latest trading update shows that all three reporting divisions are continuing to progress well and management expectations for the year are unchanged. Polypipe is a well-positioned business and management succession indicates continuity of the strategic approach. A premium rating to the sector is warranted, in our view.

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Industrials

Polypipe

Meeting management growth expectations

AGM update

General industrials

26 May 2017

Price

421.1p

Market cap

£835m

£/€1.14

Net debt (£m) at end December 2016

164.3

Shares in issue

198.3m

Free float

93%

Code

PLP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.8

24.9

30.0

Rel (local)

0.7

19.6

8.8

52-week high/low

436.5p

221.5p

Business description

Polypipe is a leading European supplier of plastic building products and ventilation systems. UK operations (c 87% of annualised FY16 net revenue and c 98% of EBIT) address a broad range of sectors including residential, commercial and civil building demand and a number of subsectors within them. Overseas operations are located in France and Italy with a new manufacturing facility in the Middle East.

Next events

H117 period end

June 2017

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Polypipe is a research client of Edison Investment Research Limited

The latest trading update shows that all three reporting divisions are continuing to progress well and management expectations for the year are unchanged. Polypipe is a well-positioned business and management succession indicates continuity of the strategic approach. A premium rating to the sector is warranted, in our view.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

352.9

48.0

19.4

7.8

21.7

1.9

12/16

436.9

61.8

25.0

10.1

16.8

2.4

12/17e

459.5

66.0

26.4

10.6

16.0

2.5

12/18e

475.5

70.8

28.7

11.1

14.7

2.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Firm market conditions, organic growth continuing

AGM comments confirmed that the first four months of the year were ahead of the previous year (revenue +4.6% l-f-l, +6.0% actual) with underlying progress from both UK and overseas operations. Implicitly, UK comparatives for this period have been adversely affected by pricing-related demand pull-forward into April 2016 and also December 2016; in this context, market conditions remain favourable. Given reference to some initial phasing delays in road infrastructure, we assume then that the revenue run rate for Residential Systems is trending above the 7.1% noted. New housebuilding continues to be the dominant driver here and demand for below-ground products is a good lead indicator for other lines used later in the build. Rising input costs (chiefly currency related) have been a feature of the building products sector from H216 and increased selling prices are progressively recovering this inflation. Reported margins will be influenced by these pricing moves and favourable translation over lower-margin overseas earnings, with growth in the higher-margin residential segment mitigating some of this dilution. Management’s full year expectations and our estimates are unchanged.

Succession planning

Current CFO Martin Payne is to become CEO in October following the intended retirement of the incumbent. David Hall led an MBO in 2005 and has shaped the business and its strategy over the last 12 years, and a balanced portfolio with excellent positions in long-term growth segments is the product of this tenure. We expect the strong senior management team to continue to develop the business along these lines and the search for a new CFO is underway in good time.

Valuation: Developing a premium rating

Since our last note, Polypipe’s share price has gained a further c 9%, taking the total ytd rise to c 30%. Consequently, the current year rating has risen to P/E 16.0x and EV/EBITDA 10.8x, more towards the premium that we believe is warranted. By FY18e these multiples reduce to 14.7x and 9.9x respectively, suggesting scope for further share price outperformance over time.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017e

2018e

2019e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

Revenue

 

 

327.0

352.9

436.9

459.5

475.5

489.8

Cost of Sales

 

 

(202.4)

(210.0)

(256.8)

(271.1)

(279.1)

(286.5)

Gross Profit

 

 

124.6

142.9

180.1

188.4

196.4

203.2

EBITDA

 

 

60.8

69.3

86.4

90.8

96.0

100.2

Operating Profit (underlying)

 

 

46.3

54.2

70.4

74.5

79.5

83.4

SBP

 

 

0.0

0.0

(1.0)

(1.2)

(1.3)

(1.3)

Operating Profit (reported)

 

 

46.3

54.2

69.4

73.4

78.2

82.1

Net Interest

 

 

(7.7)

(5.3)

(6.6)

(6.4)

(6.4)

(6.3)

Other finance

 

 

(1.0)

(0.9)

(1.0)

(1.0)

(1.0)

(1.0)

Intangible Amortisation

 

 

0.0

(3.0)

(6.8)

(6.3)

(6.3)

(6.3)

Exceptionals

 

 

(20.7)

(3.5)

(0.6)

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

37.6

48.0

61.8

66.0

70.8

74.9

Profit Before Tax (FRS 3)

 

 

16.9

41.5

54.4

59.7

64.6

68.6

Tax

 

 

(5.4)

(9.2)

(11.8)

(13.2)

(13.5)

(13.5)

Profit After Tax (norm)

 

 

32.2

38.8

50.0

52.8

57.3

61.4

Profit After Tax (FRS 3)

 

 

11.5

32.3

42.6

46.5

51.1

55.1

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

199.9

199.3

198.9

198.9

198.9

198.9

EPS - normalised (p)

 

 

16.1

19.4

25.0

26.4

28.7

30.7

EPS - FRS 3 (p)

 

 

5.8

16.2

21.4

23.4

25.7

27.7

Dividend per share (p)

 

 

4.5

7.8

10.1

10.6

11.1

11.7

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

38.1

40.5

41.2

41.0

41.3

41.5

EBITDA Margin (%)

 

 

18.6

19.6

19.8

19.7

20.2

20.4

Operating Margin (underlying) (%)

 

 

14.2

15.4

16.1

16.2

16.7

17.0

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed Assets

 

 

324.2

476.5

472.6

474.6

471.8

468.8

Intangible Assets

 

 

235.0

378.4

371.6

364.8

358.6

352.3

Tangible Assets

 

 

89.2

98.1

101.0

109.8

113.3

116.5

Investments

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

103.9

99.6

119.5

151.0

185.2

222.2

Stocks

 

 

39.9

47.5

52.2

55.1

56.7

58.2

Debtors

 

 

20.2

29.3

38.4

40.0

41.6

42.9

Cash

 

 

43.1

21.6

26.5

51.3

81.9

115.6

Current Liabilities

 

 

(69.8)

(87.2)

(104.5)

(111.0)

(111.9)

(112.4)

Creditors

 

 

(69.8)

(87.2)

(104.5)

(111.0)

(111.9)

(112.4)

Short term borrowings

 

 

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(120.6)

(227.9)

(200.2)

(201.5)

(202.6)

(203.8)

Long term borrowings

 

 

(118.0)

(215.9)

(190.8)

(190.8)

(190.8)

(190.8)

Other long term liabilities

 

 

(2.6)

(12.0)

(9.4)

(10.7)

(11.8)

(13.0)

Net Assets

 

 

237.7

261.0

287.4

313.1

342.4

374.8

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

50.6

72.6

86.5

88.3

93.1

97.3

Net Interest

 

 

(10.4)

(5.7)

(7.3)

(6.4)

(6.4)

(6.3)

Tax

 

 

(3.7)

(5.2)

(10.1)

(10.0)

(13.2)

(13.5)

Capex

 

 

(14.9)

(18.9)

(18.7)

(25.0)

(20.0)

(20.0)

Acquisitions/disposals

 

 

(0.3)

(149.5)

0.0

0.0

0.0

0.0

Financing

 

 

(1.7)

0.0

(2.9)

(1.5)

(1.5)

(1.5)

Dividends

 

 

(3.0)

(10.6)

(17.1)

(20.6)

(21.4)

(22.4)

Net Cash Flow

 

 

16.6

(117.3)

30.5

24.8

30.6

33.7

Opening net debt/(cash)

 

 

84.7

74.9

194.3

164.3

139.5

108.9

HP finance leases initiated

 

 

(9.6)

(1.7)

0.0

0.0

0.0

0.0

Other

 

 

2.8

(0.4)

(0.5)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

74.9

194.3

164.3

139.5

108.9

75.2

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Polypipe and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Polypipe and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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