RPC Group (LSE: RPC) is a plastic packaging supplier. It targets the consumer, industrial, food and non-food markets.Maybe you have never heard of it, but it has a market cap of about 1bn.Guess why I am interested?
The stock of thisFTSE250-listed companyhas risen by about 200% in the last five years, and it could record a similar performance to 2019 if management continue to deliver. As the company continues to grow, its equity will likely appreciate, but will also attract interest from trade buyers and private equity firms.
In the meantime, RPC is wasting no time in deal-making. Itannounced on Thursday that it would acquire IcelandsPromens Group for 386m, valuing the target at6.8 times trailing Ebitda. That is a fair take-out multiple for the packaging industry.
The PromensDeal
Theres a lot to like in the deals structure.
RPC has proposed to finance the acquisitionpartly via a 200m rights issue, while the reminder will be funded by an existing revolver, essentially an undrawn credit line,which has been increased from 350m to 490m. This signals a willingness by lenders to support a combined entity that is expected to carry a manageable net leverage ratio of about 2x at the end of March 2015.
Management is ready to take swift action, and thats important.
RPC stockhas been under pressure since June, having lost about 17% of value over the period, but has bounced back with the market since mid-October and is up more than 5% on Thursday. Results released today showed that RPCsnet profit for the six months to the end of September rose by 10% to 22m, while acquisitions andorganic growth pushedrevenue up by more than 10%to 588.9m over the period.
Plenty Of Growth & A Takeover Target
Based on trading multiples, RPC shares arent particularly expensive and, equally important, do not price in a takeover premium, in my view.
A merger withRexamwouldcertainly make sense, and ifleverage goes down quickly, theres little doubt that RPC may attract interest from private equity firms seeking forcapital arbitrageopportunities.
Its too early for a takeover, perhaps, so if you buy RPC you may just end up owning a fast-growing company, with a sound balance sheet, a free cash flow yield at 2.5% and a forward dividend yield in line with that of the market. If you have never heard of it, well, you know what you should do right now.
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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended RPC Group. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
