UPDATED: Nuplex shares gain after 35% profit rise; turnaround complete

UPDATED: Shares in Nuplex Industries [NZX: NPX], which makes resins used in industrial coatings and paint, rose 2.2 percent after the company announced a 35 percent increase in annual profit, beating expectations, on earnings growth in Europe and Asia.

Net profit rose to $70.8 million, or 35.9 cents per share, in the 12 months ended June 30, from $52.4 million, or 26.4 cents, a year earlier, the Auckland-based company said in a statement.

Stripping out the two businesses Nuplex sold in the year, underlying profit rose 39 percent to $63.4 million on a 1.4 percent increase in sales to $1.37 billion. Operating earnings before interest, tax, depreciation and amortisation rose 15 percent to $127 million, within Nuplex's guidance for Ebitda from continuing operations to be between $124 million and $128 million.

Investors reacted positively to the result, pushing its shares up 9 cents to $4.27, with the shares having lifted nearly 50 percent this year. The company also announced an increased annual dividend of 27 cents, up from 21 cents a year earlier, and the board said it wanted to grow dividends from the 2015 financial year in line with earnings.

Nuplex lifted the payout ratio to a minimum of 60 percent of net profit attributable to shareholders from the previous payout range of 55 to 65 percent after reviewing the company's capital structure earlier this year.

The company is about 70 percent through a planned buyback of 5 percent of issued shares that has been under way since March, at an average price of $3.73. The programme will resume on Monday after it was halted pending the results announcement.

Chief executive Emery Severin said 2015 had been a transformational year for the business: "A significant improvement in earnings was driven by a strong contribution from Europe, growth in Asia, gains in the Americas, and a turnaround in New Zealand. This, in turn, underpinned the substantially higher dividend."

The company's history in recent years has been a run of profit downgrades since a shareholder bailout in 2009, but First NZ Capital analyst Greg Main said there has now been a turnaround after Nuplex cut back operations in Australia and New Zealand, divesting its Australasian agency and distribution business Nuplex Specialties and its plastic additives business Nuplex Masterbatch for A$127.5 million in November.

The asset sales let the company reduce debt to $139.9 million, and able to focus on global resins.

First NZ's Main said it was a solid result at the operating level and slightly ahead of expectations.

"The potential recovery they signalled in Europe is slowing panning out and they have a good business there. The Asian story is very good as well, and over the next few years the growth is heavily favoured towards Asia, given their latest plant investments and it should be a positive story," Main said.

The completion of the three-year restructuring in Australia and New Zealand, which has seen it cut back manufacturing capacity by 30 percent, delivered $6 million of benefits in the 2015 year and is expected to deliver a further $6.5 million in the 2016 financial year.

Started in New Zealand in 1952, Nuplex now derives 43 percent of its revenue from Europe, while Australia and New Zealand account for 22 percent. Asian revenues are similar, at 23 percent, and the Americas contribute 12 percent.

Nuplex's Severin said that picture looks quite different at the Ebitda level, with Australia and New Zealand contributing only 9 percent, while higher margins in the Americas and Asia see those regions contributing 18 percent and 28 percent respectively, while Europe accounts for 45 percent.

Asia was expected to deliver much of the future growth through production at its new sites in Changshu, China and in Surabaya, Indonesia, Severin said. Nuplex invested $43.5 million in new plants in the 2015 financial year, which has increased capacity by 75 percent.

It has signalled capital expenditure will be modest in the next two years but could ramp up to more than $70 million in the 2018 financial year if Nuplex goes ahead with plans to build on three new sites in Vietnam, Thailand and possibly Russia, if needed.

Severin said expectations of future growth also rely on the success of its breakthrough coating technology, Acure, introduced in April this year, which combines faster dry times with long pot life.

He said initial customer feedback has been positive and the first meaningful sales are expected by the end of this year.

Nuplex has a target of Acure hitting 5 percent to 10 percent of the estimated US$1 billion to $2 billion market by the end of the 2020 financial year. It also has a more modest target of hitting $25 million in sales from innovation, including Acure, by the 2018 financial year. Other technologies it's working on include rheology (flow control) agents, sustainable polymer backbones, powder coatings, and extending applications for Acure.

First NZ's Main said Nuplex customers will take some time to test the new Acure technology and see what benefits it delivers them so it could take a few years for the value to come through.

"It will come down to what players are first to pick it up. What brands use it early on will indicate what potential it has," he said.

Nuplex expects to generate about $20 million from further property sales during the next two years, including the sale of a site in Avondale, Auckland, which is currently under way.

(BusinessDesk)

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