Falling gross margins, a significant decline in US metallic pigment orders and a gloomy outlook for 2015 sent shares in packaging materials company API (API) sliding 7 per cent on results day. Constant-currency revenues were up 1.6 per cent, but a less profitable sales mix caused operating profits to slip 12 per cent to £2.8m.
Of API's four divisions, only its core laminates segment posted an increase in revenue. However, strong demand from key tobacco customers did not translate into higher operating profits, due to mix issues and some one-off costs. Management is now working on lowering input costs to reverse the trend. Elsewhere, the European foils unit suffered due to the weak demand environment on the continent, while US foils sales plummeted by almost a third due to slumping metallic pigment orders.
Looking ahead, chief executive Andrew Turner told us that an expected increase in metallic pigment orders would be offset by a seasonally weaker second half in the US graphic foils market. He also warned that a less favourable sales mix would continue to offset buoyant laminate orders.
More worryingly, however, there's little sign that Europe's sluggish markets are turning. Broker Numis Securities has therefore provisionally downgraded its adjusted pre-tax profit forecast for the full year by 14 per cent to £4.4m, giving EPS of 4.6p.
| API (API) | ||||
|---|---|---|---|---|
| ORD PRICE: | 44p | MARKET VALUE: | £34m | |
| TOUCH: | 42-46p | 12-MONTH HIGH: | 80p | 43p |
| DIVIDEND YIELD: | 4.7% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 33p* | NET DEBT: | 22% | |
| Half-year to 30 September | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 56.9 | 2.6 | 3.5 | 0.70 |
| 2014 | 56.4 | 2.3 | 2.5 | 0.75 |
| % change | -1 | -13 | -29 | +7 |
Ex-div: 11 Dec Payment: 12 Jan *Includes intangible assets of £5.6m, or 7p a share | ||||
