RPC packs a punch

Innovations in rigid plastics are allowing ever more consumer goods companies to switch to using such materials and benefit from associated cost and environmental advantages. That's why analysts at Research and Markets predicts the market will achieve a compound annual growth rate of just above 6 per cent over the next five years.

RPC, a company that makes bottles, deodorant cans and food jars for the food and beverage, healthcare, personal care and automotive markets, looks in a prime position to exploit the rising demand. Its Vision 2020 strategy aims to boost organic growth through investment at the same time as pursuing an acquisition strategy to consolidate a leading position in the fragmented European market and take the business into new areas.

So far that plan is working. Broker Jefferies believes that, even without further acquisitions, the organic growth opportunity and the likely benefits from two recent big deals (the purchases of Ace and Promens) will deliver a compound annual earnings growth rate of 9 per cent out to 2018. However, should acquisitions continue to boost growth, the broker reckons the compound annual growth rate would be closer to 15 per cent, or perhaps even higher.

Acquisitions are helping RPC in two key ways. Firstly, they are expanding the business and taking it into new regions and product areas. Secondly, RPC's scale means it is able to create significant cost savings when it integrates its purchases. A case in point is Promens, which was acquired in February for €386m (£299m). Aside from having a huge presence in Europe, the Iceland-based business brings new technologies on board, along with 42 production facilities that span 20 countries, including the US, Asia and north Africa. What's more, RPC has already doubled its estimate of the likely synergies from integration to €30m.

This is not a one-off - as RPC has a strong record as an acquirer and it is estimated that six deals since November 2013 have yielded 7.8p in EPS accretion from cost synergies alone. Another significant recent deal for the group was last year's acquisition of China-based, Hong Kong headquartered Ace Corporation for up to $430m (£255m). This business, which manufactures plastic injection moulded components and injection moulding tools, gave RPC a sizeable foothold in the blossoming Asian markets. And RPC has used Ace's technology to boost sales in Europe, too.

Internal investment is growing RPC's interests outside Europe, too. To cater to strong appetite in US markets, management recently provided additional capacity in food packaging via a big expansion programme in Pennsylvania. It also expanded its M&H Plastics facility in Virginia and invested in Superfos, which makes packaging for food, soups and sauces, margarines and spreads, paints and DIY products. Those measures helped boost US sales relating to these sites by 52 per cent in the last financial year.

Prospects in Europe, which still accounts for 85 per cent of revenues, also look encouraging. Indeed, the latest purchase managers' index - a key barometer of economic health in the manufacturing sector and future indicator of GDP levels - recently reached its highest level in four years and the agreement between Greece and its creditors should restore some euro calm - at least temporarily. The group also stands to benefit from a raft of recent bolt-on acquisitions in Europe, such as May's acquisition of Belgian stackable polyethylene terephthalate (PET) containers manufacturer Innocan, which will nicely complement February's €43m acquisition of a Netherlands-based PET market leader.

Sliding polymer prices as supply constraints in Europe ease should also improve performance. With the oil price still weak, prices could continue to fall.