James Cropper's high tech unit saves profit

James Cropper’s (CRPR) high-tech materials division has papered over cracks as the company saw sales come back to pre-pandemic levels but with profits not yet following, as high energy costs begin to bite. 

The company is a paper and cardboard packaging producer primarily, but also has a division making aerospace and hydrogen fuel cell parts. This was the only profitable division in the 12-months to 26 March, with an operating profit of £8.7mn. This was the same last year, although the paper division’s operating loss widened between 2021 and 2022, from £309,000 to £2.3mn. 

Cropper chief executive Phil Wild said the paper division’s power costs had gone up 70 per cent compared with the 2020 financial year. Wild added that fixed energy prices for the company’s first quarter and a surcharge being handed to customers was “mitigating the impact over the medium term”. 

Higher spending was also a theme in 2022 – the company more than doubled its capital expenditure to £6.8mn to increase capacity, although deferred expansion plans could account for this jump. 

When we last covered James Cropper in 2019, we flagged its high pension liabilities and input cost volatility as a reason to stay away. The former has come down since – thanks to pension payments being £4.8mn less than expected in the year – but the latter has remained an issue, cutting into operating profits, the margin for which remains a measly 3.5 per cent. We remain bearish on the company. Sell.

Last IC View: Sell, 1,400p, 20 Nov 2019