Gamble of the week: Resourceful packaging designer

published 18 May 2012

It's been a tough period for consumer-facing stocks, yet you wouldn't think so, judging by the latest numbers from bespoke plastics packaging expert Robinson. In 2011, sales climbed 10% to £21.5m. Meanwhile, earnings per share rose by 17% to 9.4p; the dividend was raised by 15% to 3.75p a share. The stock now yields 3.7%.

The strong figures are the result of innovation and astute management. The company serves many of the world's big consumer goods companies, such as Nestl, Unilever and Boots. These companies are seeking "on-shelf panache" for their products to draw customers away from cheaper own-branded goods.

Robinson provides this flair, or point of differentiation', by designing tailored packaging for its customers. For example, in October the famous Dutch brand, Honig (part of Heinz), asked the group to create a new Foodservice Pack' for powdered soups. The 1.5-litre container incorporates eye-catching logos, a non-slip grip, improved pouring and a tamper-proof lid.

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Robinson also enjoys exciting overseas opportunities. More than 20% of its sales are derived from continental Europe, which is served mainly by its low-cost Polish factory in Lodz. This is generating substantial interest from global brand owners who would rather secure supplies locally than source from Asia.

Elsewhere, the group owns spare property with a book value of £5m. However, the land has development potential, and if sold, the directors believe it could fetch a price tag of £7m to £10m (around 40p to 60p per share). This year started well, with the signing of a major new contract in the household sector, despite difficult conditions. Indeed, chairman Richard Clothier believes the firm is well insulated against a possible downturn because of its exposure to the "usually resilient" food, drink, confectionery, cosmetics and toiletry sectors.

Robinson Packaging (Aim: RBN)

So what could upset the applecart? Along with the subdued consumer backdrop, the other main challenges facing the board include fluctuating raw-material costs and pricing pressure. That said, Robinson has so far successfully passed on higher plastic resin costs, and is bucking the wider malaise.

The company's house broker, WH Ireland, expects sales and underlying earnings per share to come in at £24m and 10.5p respectively in 2012, before rising to £26m and 13.7p in 2013. This leaves the shares on a p/e of less than ten.

I would instead value the group on an eight times EBITA multiple. Adjusting for the £0.6m of net debt and £5m of excess land, this generates an intrinsic worth of around 145p per share. This also ignores any upside from its £6.6m pension surplus (net of tax). WH Ireland has a price target of 137p.

Rating: SPECULATIVE BUY at 100p (market capitalisation £16m)

Paul gained a degree in electrical engineering and went on to qualify as a chartered management accountant. He has extensive corporate finance and investment experience and is a member of the Securities Institute.

Over the past 16 years Paul has held top-level financial management and M&A roles for blue-chip companies such as O2, GKN and Unilever. He is now director of his own capital investment and consultancy firm, PMH Capital Limited.

Paul is an expert at analysing companies in new, fast-growing markets, and is an extremely shrewd stock-picker.