Mpact, the diversified JSE-listed packaging maker that was spun out of Mondi five years ago, posted mixed results in the six months to June.
This came as a couple of dismal trading updates in past months spooked the market and pushed Mpact’s share price down from more than R50 in March to less than R30 in June, before recovering to about R33 now.
The plastics and paper manufacturer and recycler had only ever posted a steep upward trajectory since listing in July 2011. It has been a share to watch, just like its former parent, Mondi.
Analysts say that, just like Mondi, it is a well-managed company.
So the market was nonplussed when Mpact indicated in May, and repeated in July, that its interim June financial results would differ by a negative 20% or more from the financial results of the previous corresponding period.
Quite a lot more, actually.
In May, it said the expected decline in profitability was attributable to lower sales of container board, higher finance costs and a slower than anticipated ramp-up of its Mpact Polymers recycled plastic bottle plant.
It also blamed a higher effective tax rate in the period.
The lower sales of container board were a consequence of some of its customers buying their own paper mills from Sappi, which had disposed of non-core businesses. To that end, headline earnings per share for the six months tumbled 29.4% to 94.9c in the year.
Meanwhile, underlying operating profit fell 6% to R322m.
The downside was partially offset by an improved performance in the rest of the paper and plastics businesses.
But the company foresees a tough trading environment for the next 18 months.
Mpact CEO Bruce Strong said recently, when presenting the company’s results, that Mpact Polymers was still in a development phase.
But notwithstanding large capital investment in Mpact Polymers, and Mpact’s Felixton paper mill in KwaZulu Natal, Strong said the balance sheet has remained strong, with gearing at 33.8% and return on capital employed of 16.7%.
36One analyst Daniel Isaacs says Mpact’s interims are better than expected in light of the "surprisingly negative" trading updates in recent months. He says these lacked detail and had left too much for the market to work out.
A proposed R4bn buyout of SA plastics raw materials maker Safripol by JSE-listed KAP Industrial Holdings — announced last week — will make KAP a bigger player in markets for plastic bottles, according to Avior Capital Markets analyst Mark Hodgson.
Safripol specialises in the production of polypropylene and high-density polyethylene, raw materials used in a wide range of packaging applications. including beverage bottle closures, crates and yoghurt cups.
It supplies these in pellet form to various plastic convertors in SA.
Dirk van Vlaanderen, investment analyst at Kagiso Asset Management, says that KAP’s acquisition of Safripol does not appear to have any significant near-term implications for SA’s packaging industry.
"It certainly does not change the competitive landscape for the plastic converters, who will likely remain customers of Safripol — if the [KAP] deal is approved," says Van Vlaanderen.