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Margin and dividend boost at Polypipe

Strong demand and efficient use of working capital helped to boost margins to a record high
March 31, 2017

Polypipe (PLP) took full advantage of favourable trading conditions in 2016, as demand for its plastic piping and ventilation systems grew strongly. Underlying operating profits grew by 28 per cent to £69.4m, while margins rose from 15.4 per cent to a record 15.9 per cent.

IC TIP: Buy at 378.5p

As well as a buoyant construction market, there was significant demand generated by regulatory requirements, notably on flood alleviation, as well as legacy material substitution, where old pipes are being replaced with new plastic fittings. There was also a useful contribution from Nuaire, the ventilation business acquired in 2015.

Sterling's depreciation in the second half reversed a first-half decline in polymer prices, although Polypipe was able to adjust selling prices accordingly. Export revenue rose by 28.7 per cent, reflecting a greater supply of products sent out to its Middle East facility. Cash conversion was strong at 97 per cent and this helped to reduce net debt from 2.5 times cash earnings a year earlier to 1.9 times, and this is expected to fall further.

Analysts at Peel Hunt are forecasting adjusted pre-tax profits for the year to December 2017 of £68m and EPS of 27.2p (from £61.8m and 25p in 2015).

POLYPIPE (PLP)
ORD PRICE:378.5pMARKET VALUE:£751m
TOUCH:378.2-378.5p12-MONTH HIGH:379pLOW: 217p
DIVIDEND YIELD:2.7%PE RATIO:17
NET ASSET VALUE:145p*NET DEBT:57%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201228221.027.7nil
201330124.626.7nil
201432716.97.04.5
201535341.517.17.8
201643754.422.210.1
% change+24+31+30+29

Ex-div: 27 Apr

Payment: 2 Jun

*Includes intangible assets of £372m, or 187p a share