Robinson PLC (LON: RBN) – Dividend increase and recent acquisition underpins confidence in the outlook.

Robinson PLC is a FTSE AIM All-Share index quoted Company that is engaged in custom packaging for food and consumer product hygiene, protection, safety, and convenience. Primarily, it deals in rigid paperboard luxury packaging and injection and blow moulded plastic packaging within the food, personal care, homecare, and luxury gift sector. The Company serves some consumer goods giants, including Procter & Gamble, McBride, SC Johnson, Reckitt Benckiser, and Unilever. Robinson is headquartered in Chesterfield, UK with 2 plants in Poland, 3 plants in the UK and recently acquired a plant in Denmark. The Group has considerable development potential and a property portfolio.

On 25 March 2021, RBN expects to report its full-year results for the year ended 31 December 2020.

(Source: Presentation, Company Website)

Growth Prospects and Risk Assessment

Robinson’s performance remained resilient in FY20 despite the challenging market conditions. In H1 FY20, the Group was also able to reduce net debt, which underpins a stronger balance sheet position. The recent acquisition of Schela Plast A/S shall expand the RBN’s geographical presence and create sales growth opportunities. The acquisition is a solid complementary fit to existing products, manufacturing locations and customers. In FY20, the Group also invested £4.6 million in replacement and refurbishment of production equipment which shall maintain a competitive manufacturing infrastructure.

However, due to the Covid-19 situation, the consumer environment is weak. Moreover, the inability to adopt the changing consumer health trends and health policies can lead to a loss of consumer base. The increasing cyber-attacks with Covid-19 migration can lead to operational disruption and financial loss. Furthermore, volatility in foreign exchange rates amid recessionary economic condition can increase the cost base. Also, there is a risk regarding the unavailability of raw materials and fluctuations in input prices.

Industry Outlook Dynamics

As per the Global Market Insights, the market size of the Global Packaging Materials industry was estimated at around US$900 billion in 2016 , and it is projected to reach US$1.3 trillion by 2024. The progressive growth in the food & beverage industry would propel the packaging materials demand. Moreover, the increasing consumption of alcoholic and non-alcoholic beverages would also be a growth enabler for the packaging market.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Robinson Plc.

Recent Developments

On 1 March 2021: The Company had agreed on new facilities with HSBC UK Bank, which is of total £12 million. This facility is with respect to the newly acquired Danish subsidiary, Schela Plast A/S.

On 11 February 2021: Robinson acquired Schela Plast A/S, which expects total consideration of £7.7 million (including earnout) on a debt-free cash-free basis. This acquisition will expand geographic reach and creates sales growth opportunities with new and existing customers.

Trading Update (for the year ended 31 December 2020, as on 21 January 2021)

• In FY20, the Company expects revenue to be £37 million, which represents an increase of 6% from 2019.
• The reported profit before tax is expected to be ahead of 2019 and will be ahead of current market expectations.
• The Company witnessed a strong cash generation from operations, supported by a new investment of £4.6 million in new additional and replacement production equipment and a manufacturing building refurbishment in the UK business.
• On 31 December 2020, the net debt decreased to £6.6 million as compared with the previous year (2019: £6.9 million).
• The Board has proposed a total dividend per share of 8.5 pence, an increase from the previous year (2019: 2.5 pence).

Financial and Operational Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 18 August 2020)

(Source: Company Website)

• Despite the challenging conditions arising from the Covid-19 pandemic, the Company has shown good progress in the first half.
• The Company reported revenue of £17.9 million in H1 FY20, which increased by 5% year-on-year from £17.1 million in H1 FY19. The revenue growth was supported by the performance of the main market where the Company supplies its products.
• Moreover, the demand for packaging products was supported by the increased sales of liquid, hand sanitizer and household cleaning products.
• In H1 FY20, the gross margin improved to 23.6% from 19.7%. The lower prices of resin and operational efficiency improved the margins.
• The profit before tax for the first half of 2020 stood at £1.1 million, which was much higher than £0.3 million reported in H1 FY19.
• With improved profitability and working capital management, the Company has reduced its net borrowings by £1.3 million. The available credit facilities were £13.5 million, with no formal covenants.
• In the UK, it has successfully installed six new production lines, which increased the operation's efficiency and capacity.
• The Company made the refurbishment of a manufacturing building in Kirkby-in-Ashfield, which will support future growth.

Financial Ratios (H1 FY2020)

Share Price Performance Analysis

On 9 March 2021, at the time of writing (before the market close, at 8:02 AM GMT), RBN’s shares were trading at GBX 147.50, down by 3.28% against the previous day closing price. Stock 52-week High and Low were GBX 179.00 and GBX 42.00, respectively.

From the technical standpoint, 14-day RSI (33.91), 200-day SMA (134.98), and 200-day EMA (135.54) are supporting the upside potential. 

In the last one year, Robinson’s stock price has delivered a stellar return of around +142.06%; it has significantly outperformed the FTSE All-Share General Industrials and FTSE AIM All-Share index with a return of nearly +31.23% and +45.21%, respectively.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

RBN remained committed to delivering mid to high single-digit organic sales growth, which shall be supported by acquisitions of complementary businesses in Europe. For FY20, revenues are anticipated to be £37 million, representing a 6% increase on FY19. Subsequently, adjusted and reported profit before tax for FY20 are anticipated to be ahead of FY19. Moreover, strong cash generation resulted in the reduction of net debt to £6.6 million as of 31 December 2020 (FY19: £6.9 million). Subsequently, the Board has revealed its intentions to significantly increase the total dividends to 8.5 pence in FY20 from 2.5 pence in FY19. In a nutshell, Robinson is committed to investing in new production, enhance capabilities and pursue sustainable growth in the business.

Considering the decent revenue growth, robust liquidity & balance sheet position, adjusted profit before tax will be ahead of current market expectations, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Robinson at the current price of GBX 147.50 (as on 9 March 2021, before the market close at 8:02 AM GMT), with lower-double digit upside potential based on 12.56x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

* The dividend yield is subject to change as per the stock price movement.

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