API Group finals

API Group PLC a global supplier of foils, films and laminates.  I have a holding in my growth portfolio (epic code: API).

 

API Group announced their full year results yesterday and stated that group revenues for the twelve months to March 2014 increased by 2.0% to £114.7m.  Sales volumes were higher by 2.7%, with second half volumes up 7.1% on the prior year, compensating for a small decline in the first six months.

 

In spite of these higher sales levels, management said that added value margin declined slightly due to the sales mix between the business units, the impact of less favourable exchange rates and higher levels of production scrap at Laminates.  This, together with slightly higher variable costs, more than offset the contribution from higher sales, to leave pre-exceptional operating profits down by 4.8% at £7.4m.

 

Diluted EPS was down 1.4% to 7.1p, if we exclude exceptional items the EPS was 7.8p down 7.1%.  The directors are proposing a final dividend of 1.3p per share, making 2.0p for the full year; the first dividend paying year since 2001.

 

Free cash flow at £3.97m was up £2.26m on last year and represented 5.1p per share.  Consequently the net debt position of £3.2m last year was turned in to a net cash position of just over £0.1m.

 

API is an interesting company:

 

• with opportunity for growth - see here for my initial write up;  
• at 72p a reasonable price - 9.2x historic earnings, 7.8x the consensus estimate for this year and 2.1x book value, for a company that is expected to grow earnings by ~18% this year; 
• a strong balance sheet - net cash and undervalued tangible assets in the form of property*.
• a strong activist shareholder base Steel Partners (32.4% holding), Wynnefield (29.7%) and Crystal Amber (11%).

 

It is worth noting though that the company does have a substantial net liability on their defined benefit pension funds of £13.4m, although they are closed to future accruals.  The company has agreed with the trustees to pay £700k pa until 2019.

*Their 20 acre Rahway New Jersey site could be worth up to $18m based on similar property in the area.