Like the Queen, API has been with us since the 1950s. However, unlike Her Majesty, the packaging material group's reign may soon be over. Under pressure from major shareholders, the business is effectively up for sale but, given that it’s now in the "healthiest group financial position for at least a decade," according to chairman Richard Wright, any buyer will be forced to pay a big premium.
- Up for sale
- Solid full-year results
- Big laminates contract underway
- Share price rating fails to reflect growth
- A bidder may not materialise
- Possible ban on cigarette pack advertising
That API has made such progress has much to do with chief executive Andrew Turner. The business was haemorrhaging cash and was deep in debt when he took over in October 2007 yet, within four months, it had raised £8m, begun slashing costs, got the bank onside and switched its listing to the Alternative Investment Market (Aim).
Now supplying the big tobacco companies, drinks giant Diageo and drugs major GlaxoSmithKline, API is profitable and has generated over £8m of cash from operations for two years' running. It should be debt-free in 2013 and, after weathering a period of high raw material costs, prices are falling and margins are bound to improve.
API is only on the market because Steel Partners, the US activist fund and 32 per cent shareholder, has just listed on the New York Stock Exchange and its plans don't include API. They and Wynnefield Capital, with a near-30 per cent stake, demanded back in February that API seek a buyer. Mr Turner agreed to start looking once shipments for a lucrative five-year laminates contract had begun at the end of June. Understood to be with a tobacco major, it could generate £10m of sales this year and twice that the year after.
That might reignite interest from Illinois Tool Works. It tried buying the heavily loss-making API in 2005 for about £70m, equivalent to roughly 100p a share today according to analysts, but Steel Partners wanted more. Moreover, API is thought to have grabbed the attention of potential suitors in Germany and the Middle East and could create a stir among foil makers in Asia, too.
API (API) | ||||
|---|---|---|---|---|
| ORD PRICE: | 55.8p | MARKET VALUE: | £42.8m | |
| TOUCH: | 55.5-56p | 12-MONTH: | 68.5p | LOW: 27.8p |
| DIVIDEND YIELD: | nil | PE RATIO: | 6 | |
| NET ASSET VALUE: | 28p | NET DEBT: | 17% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 87.4 | -0.25 | -1.7 | nil |
| 2010 | 79.2 | -0.34 | 3.4 | nil |
| 2011 | 100 | 2.86 | 3.5 | nil |
| 2012 | 114 | 5.06 | 6.7 | nil |
| 2013* | 122 | 7.60 | 9.3 | nil |
| % change | +7 | +50 | +39 | - |
Normal market size: 4,000 Matched bargain trading Beta: 0.46 *Numis Securities estimates | ||||
Bid prospects aren't the only reason to own API's shares, though. Improving margins meant this year's profit topped £5m and, because accumulated tax losses in the UK and US mean it currently pays hardly any tax. EPS almost doubled.
As usual, supplying laminate packaging for upmarket cosmetics brands, cigarette packets and booze made most of the money - about £5.7m of operating profit in all. And increasing demand for security features on clothes tags and ID cards meant profit at the holographic division tripled to £1.6m. It was tougher at the lower-margin foils unit. Sales there were little changed both in Europe and the US and, while cost-cutting helped profits in the Americas, higher overheads and weak volumes halved income this side of the Atlantic.
Of course, there are risks. Unlikely as it is, API could go unsold, or struggle to attract a decent price. Making a big chunk of group profits from the tobacco industry carries dangers, too, given the threat of a ban on branded cigarette packaging.
