There is not much anyone can teach Phillip Abelheim about the packaging industry. It’s a game in which he has been involved for more than 40 years, 39 of them as CEO of Transpaco.
As CEO of the small-cap flexible plastics, paper and board packaging group, Abelheim has always followed a simple business model.
"We have never moved into the high end of the market," he says. "We have also built a phenomenal management team and bought good businesses."
Transpaco’s product range is undeniably basic.
Its plastics division’s products include refuse bags, bin liners, carrier bags and pallet wrap, while the paper and board division produces the likes of boxes, cardboard cores and paper bags.
It’s dull, perhaps, but it is a product line-up providing Transpaco with solid resilience at a time when its far larger listed peers, Nampak and Mpact, are trundling in less-than-impressive results.
In its year to June, Transpaco raced home, lifting headline EPS (HEPS) by 36% and its annual dividend by 39%.
This followed HEPS and dividend increases of 16% the previous year.
The star performer in the latest year was the plastics division: sales lifted R332m (37%) to R1.23bn and operating profit rose R45m (82%) to R100m.
It left plastics contributing almost two-thirds of group operating profit.
The latest year’s results came with the help of refuse bag and bin liner producer East Rand Plastics (ERP), acquired from Astrapak in a R77.5m cash deal that was closed in August 2015.
ERP’s sale was part of an aggressively restructuring Astrapak’s strategy to hastily exit the flexible packaging sector.
It is a strategy that has played into Transpaco’s hands, believes Abelheim.
"Astrapak did a lot of work on ERP before it sold it to us," says Abelheim. "We bought a great business with excellent management. I feel Astrapak should never have sold ERP."
But it was not ERP alone that powered the Transpaco plastics division’s impressive showing. "All our plastics operations did well," says Abelheim.
Reflecting this, ERP’s sales in the six months to January 2015 were reported at R97.4m and earnings before interest, tax, depreciation and amortisation were at R16.4m.
It suggests ERP drove about half of the plastics division’s sales increase and two-thirds of its operating profit rise in the year to June.
Astrapak and Nampak’s exit from flexible plastic packaging was strongly influenced by their concern about the influx of big foreign competitors. Abelheim shrugs off the threat.
"I am no more afraid of big foreign competitors than I have been of the big local players we have always faced," he says.
"They must all function in the same environment in which we are."
ERP is not the first business Transpaco has snapped up from local players such as Nampak.
"Transpaco has been able to do a better job with the businesses than they did," says Walter Aylett of Aylett Fund Managers.
"Abelheim is an incredible manager," says Aylett, whose firm has a 5% exposure to Transpaco across its funds.
More acquisitions will come, promises Abelheim.
"But we will as always be very careful what we buy," he says. "They must be sustainable businesses."
When more acquisitions come, Transpaco’s balance sheet will be well prepared. Despite taking on board ERP, the packaging group ended its latest year with cash on hand of R85m, exceeding debt of R73m.
Aylett believes Transpaco’s big growth spurt, which has boosted its share price 40% since January, is over for now. "It will probably go sideways for a year or two," he says.
"But for me the share is a 10-year story. Transpaco will get bigger and start attracting big fund managers."
For now, Transpaco’s attraction is for small-cap share investors looking for value. Trading on an 8.3 p:e and a 5.5% dividend yield, the share has it to offer.