Nuplex balance sheet strong enough to fund capital intentions, organic growth

UPDATED: Nuplex Industries [NZX: NPX], which makes resins used in industrial coatings and paint, has enough cash to fund development plans across Asia, which it sees as underpinning organic growth, chief executive Emery Severin says.

The manufacturer's executive team updated investors on its growth aspirations, which project a 64% gain in sales across Asia by 2018, and double-digit earnings before interest, tax, depreciation and amortisation in 2016 through to 2018 from Asian operations. Today's investor day followed last week's announcement that Nuplex expects to pay total dividends of 27c this year, up from 21c in the 2014 year, and lifted its dividend payout ratio to a minimum 60% of net profit from a previous range of between 55% and 65%.

Mr Severin told BusinessDesk the company's board had reviewed its capital management after the recent sale of its ANZ Specialties and Masterbatch businesses for $A127.5 million, with proceeds put toward repaying debt and embarking on a share buyback. That left Nuplex with enough cash to deal with any shocks, fund a higher dividend ratio and provide capital to fuel the company's organic growth plans.

"We don't have a lot of headroom to make acquisitions," Mr Severin said. If the company wanted to make a major acquisition in the realm of $100 million-plus, "we'd need to go back to the market to raise equity."

Nuplex had looked at potential acquisitions, but earnings multiples were too high to justify buying them, Severin said.  

In Asia, Nuplex has a market leading position in China for five of its six product lines, while four rank No 1 in both Indonesia and Malaysia. Its two-stage strategy for Asia has involved spending $60 million since the start of 2011 to increase capacity by 75% in the first phase. The biggest commitment is in China, including a $US4 million regional research and development centre in Suzhou opened in April 2014 and $US35 million to double capacity at its factory in Changshu, due to be commissioned by mid-2015.

Phase two includes developing a brownfield site at Changshu and expansion in Vietnam, Indonesia, Malaysia and Thailand, and the first local site in India, the company said.

Severin said Nuplex is comfortable with its forecasts for the region, having taken a fairly conservative approach to growth in emerging markets.

The company recently unveiled a new coatings product, which it hopes to start selling commercially this calendar year. Mr Severin said the Acure product, which is said to be long lasting in the tin and cures at low temperatures, is targeting 5-10% of a $US1-2 billion market within five years.

Mr Severin said Nuplex reviewed its New Zealand domicile and NZX listing and decided it wasn't an impediment for international investors and has no plans to shift, given the large number of New Zealand shareholders on the register. Although there was little trading on the ASX, Nuplex's Australian listing did provide potential investors in Australia an easier route to invest, he said.

Nuplex shares fell 1.3% to $3.71, and have gained 26% this year.

(BusinessDesk)