| Mon 9 Jun 2003, 11:33 | | Report upbeat on Astrapak, although odd weaknesses |
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Report upbeat on Astrapak, although odd weaknesses and threats detected
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Industrial Correspondent
A COMPOUND average earnings growth rate in excess of 30% was forecast for SA's second largest listed packaging company, Astrapak, through to the 2007 financial year in an in-depth analysis of the company. Earnings growth for the 2004 financial year was estimated at 26%.
Analysts who compiled the independent report, commissioned by Astrapak, based earnings growth on growing plastic packaging demand of between 5% and 10%, incremental market share gains, good cash flow reducing debt, an easing in raw material prices and continued efficiency improvements.
The report was upbeat about the prospects for Astrapak but, it also listed weaknesses and threats.
The group had not yet reached its potential, said analysts Mark Ingham and Arnold Werbeloff in the report. There was scope for further acquisitions and export development in Africa and Indian Ocean Islands, which could foster rapid growth.
The report also suggested improvements to capitalise on opportunities that had emerged after the acquisition by rival Nampak of Malbak.
While there was scope for Astrapak to grow regionally, the report said "the growth kicker for Nampak is exports, which may leave potential in the domestic playpen for nimble rivals".
Nampak was the largest player in the SA packaging industry with R10,5bn in sales in the 2002 calendar year, compared with Astrapak's R1,2bn.
Astrapak's compound earnings growth was expected to double that projected for Nampak over the next four years, said the report.
Under "weaknesses" the report said high debt levels increased investor perceptions of risk and that the linked unit structure confused shareholders.
Gearing had increased sharply in the 2003 financial year as a result of the Master Plastics acquisition, but continued high cash generation would reduce debt sharply, said the report.
There was also a lack of consistent planning methodologies in divisions and companies.
The report said that Astrapak, comprised of 22 businesses, had an ownermanager ethos that derived from all operations being successful start-ups, which had come together under a single ownership umbrella.
The company was subject to risks of volatile commodity prices, exchange rate fluctuations and price increases. However, the analysts said there were contracts and other mechanisms in place to moderate the volatility of input prices.
The report listed a possible takeover bid by a global player, and a delay in the turnaround of Master Plastics' Denver plant as threats.
Astrapak, meanwhile, was expected to continue showing "real" growth in sales volumes and market share.
The stock was priced at 390c, indicating a discount of 38% to the analysts' estimate of fair value of about 580c equity plus 44c debentures, equalling 625c.
Jun 09 2003 08:48:40:000AM Carli Lourens Business Day 1st Edition
Monday
09 June 2003
