RPC rights offer ... any thoughts?

Sunday, Jan 10 2016 by
6

I have held RPC for 13 months now, and it has performed very well over that time, up 55%. It is one of those shares I have been thinking of selling in the not-too-distant, as its stock rank is not that compelling (except for the momentum that is...which makes me think I want to hold on for a while longer)

However, now those of us who own RPC are being offered what seems a generous offer on the face of it. RPC is offering a one for five rights issue, in order to acquire global GCS group. The price they are selling these rights for is 460, quite a discount from the current price of 763. So the choices are... I can either buy these shares, or sell my rights to these shares, or do nothing and see if they pay me something eventually for them once the deadline is over. Once or twice in the past, I've bought rights issues when offered and I've noticed the shares dropped.. I suppose this is inevitable, or is it?

So my question to fellow private investors is what are your thoughts about rights issues in general, and also specifically RPC? What would you do in my shoes? Thank you, I look forward to a discussion, in what is my first post here.


Filed Under: Rights Issues,

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
6 thumbs up
0 thumbs down
Share this post with friends



RPC Group Plc is a plastic products design and engineering company. The Company offers a range of consumer products and technical components for the packaging and non-packaging markets. The Company's business is organized into two segments: Packaging and Non-packaging. The Packaging business serves the food, nonfood (including (general industrial, agrochemical and automotive), personal care (mass personal care, cosmetics and beauty), beverage and healthcare ((pharmaceuticals) markets. The Non-packaging businesses design and manufacture molds, molded products and technical components for other markets. The Company's divisions include RPC Superfos, RPC Bramlage, RPC Promens, RPC Bebo and RPC Ace. The Company uses a range of polymer conversion technologies, including injection molding, blow molding, thermoforming and rotational molding. The Company operates over 110 manufacturing sites in approximately 30 countries. more »

LSE Price
774.2p
Change
-0.6%
Mkt Cap (£m)
3,166
P/E (fwd)
9.8
Yield (fwd)
4.1



  Is LON:RPC fundamentally strong or weak? Find out More »


27 Posts on this Thread show/hide all

Mid Herts 10th Feb '17 8 of 27

In reply to post #170965

Hi Simon

Your interpretation is an easy one to make and I originally thought that the drop yesterday was due to the shares having gone ex rights. But the record date is not the same as the ex rights date which is clearly stated to be 10th Feb in the prospectus.

The prospectus contains some answers to possible questions and Nos 2.8 and 2.9 on pages 59 and 60 make the position clear.

You will see a further drop in the share price today which does reflect the fact that holders now have another valuable instrument in the form of the nil paid rights.

As I write the price is 928p compared with the theoretical price of 980p based on the last available share price before the announcement. So the overall position is a fall in the price of 5.3% approx.

In the short term that is not particularly surprising. There is a lot more stock on the market and someone has to stump up the money. The acid test will be the attraction of the stock as time goes by. Now that RPC is quite a bit larger the institutions interested may be rather different and of course the directors now have to deliver improved performance. This year looks to be pretty much in the bag but the trading statement at the AGM in the summer and the half year results will be the likely first indication. I take some comfort from their record so far.

MH

| Link | Share
ln1sof 10th Feb '17 9 of 27

Hi MH,

Many thanks for putting me right. I've never experienced a situation where the ex-date post-dates the record date so a new one for me.

So the share price fall yesterday was nothing to do with eligibility to the rights but reaction to the announcement, including the reasons you indicated.

Simon.

| Link | Share
Alina Ee 14th Feb '17 10 of 27

Quick question, if someone can help. I see that my nil-ppaid rights are in the red now. Do you know what is the break-even price? Also, presumably it is better for me to buy the shares on the market rather than to exercise the nil paid rights. Any thoughts?

Many thanks.

| Link | Share | 1 reply
gus 1065 14th Feb '17 11 of 27

In reply to post #171388

Hi Alina.

As existing shareholders, we're being offered the right to by 1 share at 665p for every 4 RPC (LON:RPC) shares that we already hold. So long as the share price stays above this 665p level (ignoring transaction costs), it would presumably make sense to buy the new shares at 665p and sell them immediately rather than let the rights lapse. Given the current share price is about 944p, we are well above the 665p exercise price with quite a margin for further downward market movements.

From your comment about "being in the red", I sense you might be slightly confused by references to the "ex rights price" which is variously mentioned as being about 980p (and which the current 944p market price is now below). This is simply a reference point for commentators to assess what the new theoretical share price would have been on the date the RI was announced, and by extension a comparator to see whether or not the market likes the proposed deal. (The ex rights price is calculated as (4x the sp on the day of the RI + 1x the 665p offer price all divided by 5).). Since the RI and acquisition were announced, the RPC (LON:RPC) share price fell by about 5% ( compared to the ex rights price) suggesting the market wasn't that keen on the deal, although I see the share price today has made a bit of a recovery.

Your decision whether to take up the rights or not (or for that matter sell your rights) is primarily a function of the 665p exercise price being less than the current market price. Whether you the choose to hold the shares or sell them is then a decision based on your longer term view on the company's prospects.

All very confusing. Hope this helps a bit ...

Best,

Gus.

| Link | Share
simoan 14th Feb '17 12 of 27

Since the RI and acquisition were announced, the RPC (LON:RPC) share price fell by about 5% ( compared to the ex rights price) suggesting the market wasn't that keen on the deal, although I see the share price today has made a bit of a recovery.

I think you need to bear in mind this always happens with a RI because existing holders will have opened short positions knowing they can buy the rights at 665p - sell the shares, buy the rights, is a common arbitrage in these situations. If you remember, this badly effected share prices during the GFC in 2008 and the FSA had to stop the shorting of financial stocks needing RI's to shore up their balance sheets for this reason. 

FWLIW I've taken up my full allocation of rights.

All the best, Si

| Link | Share
Alina Ee 14th Feb '17 13 of 27

Gus - Many thanks. That's very helpful.

One thing I am confused about is that, in my brokerage account, the value of the nil paid rights is showing below their costs. Accordingly, it shows as if I was making 58% loss. What does this mean? (I should note that I have not yet accepted the offer, and I am using X-O broker).

Many thanks.

| Link | Share | 1 reply
gus 1065 14th Feb '17 14 of 27

In reply to post #171418

Hi Alina - it does seem very odd! I can't immediately see what they're trying to tell you so in the absence of another person on the board being able to answer, I suggest you drop X-O a line/give them a call and ask them to explain.

Gus.

| Link | Share
gus 1065 15th Feb '17 15 of 27

Hi Alina - not sure if you've been able to bottom out your question with X-O.

I checked my own account (with Charles Stanley). This shows that I have 84 "rights" being exactly 1/4 of the number of RPC (LON:RPC) shares that I hold and gives them a positive aggregate value of c.£218.40 i.e. 260p each which is approximately the difference per share between the rights exercise price of 665p and the current share price (c.925p bid at the time I looked at it). I would expect your broker to show you to be in a similar position per share (albeit maybe not in a way that is entirely clear to you).

Best,

Gus.

| Link | Share
Graham Ford 7th Jun '17 16 of 27

Results today looked fine to me. But the share price is getting a bit of a hammering.

Any thoughts as to what in these results has disappointed the market?

| Link | Share
rhomboid1 7th Jun '17 17 of 27

Hi Graham , read today's markets live transcript, there's an analyst referenced who seems to make some very strong negative observations https://ftalphaville.ft.com/marketslive/2017-06-07/

| Link | Share
Graham Ford 8th Jun '17 18 of 27

Many thanks

| Link | Share
gus 1065 29th Nov '17 19 of 27

Not sure what “market expectations” are but at face value a strong set of results published this morning. Shares have had a decent run since July after initial fall following their latest acquisition so good news may already be factored into the price. Highlights from the RNS below:-

Gus.

——————

Revenue growth of 53% to 1,876m reflecting the contribution from acquisitions, organic growth, polymer price tailwinds and translation benefits from foreign exchange movements

Adjusted operating profit increase of 58% to 214.7m with adjusted EPS up 27% to 36.4p

Return on sales increase of 30 basis points to 11.4%

Strong cash generation; statutory net cash from operating activities increase of 62% to 245.4m, and free cash flow up 45% to 171.7m

RONOA expansion of 320 basis points to 28.0% reflecting acquisition synergy realisation and profitability improvements

ROCE increase of 30 basis points to 15.1%; remains well ahead of weighted average cost of capital

Interim dividend of 7.8p up 28% representing the 25th year of consecutive growth

| Link | Share
Mid Herts 29th Nov '17 20 of 27

Today's results looked pretty satisfactory to me so the sharp fall was a surprise albeit that there had been quite a run up in the previous few days.

I guess some might not like the relatively small growth in sales or the reference to further consolidation in due course. Still at the end of the day they are still standing about 80p short of the theoretical ex rights price from earlier this year after two good sets of results incorporating sizable dividend increases so the negative sentiment from last spring has not entirely dissipated.

MH

| Link | Share
gus 1065 6th Jun 21 of 27
1

Full year results out for RPC (LON:RPC) this morning. Too large for the SCVR with a market cap of >£3bn so this seems to be the place for comment/discussion.

https://www.investegate.co.uk/rpc-group-plc--rpc-/rns/full-year-results-for-the-year-ended-31-march-2018/201806060700104207Q/

Results look pretty good, with both LFL and inclusive of acquisitions revenues and profits well up. Dividends up 17%, for a reported 25th year of continuous growth. Share price has been in the doldrums of late. An example of a company appearing to perform very well in itself but in a sector (plastics design and engineering) that is getting a pasting in the media. Macro sentiment seems to be dominating the micro performance. Company still seems keen on growth by acquisition, so potential targets are hopefully available at decent prices.

Gus.

| Link | Share | 2 replies
DJA1969 6th Jun 22 of 27

In reply to post #370359

Profits up, Dividends up, Share price down 13.5% .......... I know plastic is an unfashionable word but this appears odd

| Link | Share | 1 reply
andrea34l 6th Jun 23 of 27

In reply to post #370359

I would suggest that the price fall is due to the following:

  1. Operating profit is up 38%, but eps is only up 16%... although 16% is still rather more than the average FTSE-100 company, and it at odds with a current PER of less than 10.
  2. The outlook sounds a bit dull, aiming for an increase in operating profit of core areas by £50m by 2021, and organic growth better than GDP... though the latter may be perceived as reasonable by a FTSE-100 behemoth.
  3. Debt is a concern for some, though at 59% is not gigantic.

Sadly, I hold :-( At least the dividend is good, with an increase of 17% compared to last year. 

| Link | Share
gus 1065 6th Jun 24 of 27

In reply to post #370424

I agree - was just thinking the same thing.

Interesting piece in today’s FT (read it on a link over on the iii board). Basically saying “great (historic) results, but market focusing on the future prospects as environmental concerns/governments line up against single use plastics”.

Personally, I think RPC (LON:RPC) seem up with/ahead of the curve on this (quite a lot of comment on this topic in the detailed text of today’s release) and given their scale and decent management should be better placed to adapt than many of their competitors. After today’s fall, dividend yield is over 4% and p/e less than 10 for an up to now decent growth story. Possible Contrarian play for the brave maybe. I already hold some and may look to add on further weakness.

Gus.

| Link | Share
Snoo 6th Jun 25 of 27
1

A lot has been made of the fact that RPC don't manufacture any products on the EU blacklist.

But the media agenda against plastic seems to be becoming more negative/widespread, and governments know that some actions are no-lose in the eyes of voters, ie the 5p plastic bag thing.

I think what the market is pricing in is that there may be action in future against products that RPC do make. Or that current growth is at an end - more debt-fuelled acquisitions may make investors nervous or that companies are seeking to use less material in packaging, even the 'safe' plastics.

I am interested if there is further weakness though. The type of products they have aren't going to disappear overnight.

| Link | Share
JohnWigg 6th Jun 26 of 27
2

Discussed on FT MarketsLive:

https://ftalphaville.ft.com/marketslive/2018-06-06-2/

The discrepancy between Northern Trust Capital Markets ("the most aggressive accounting we've ever seen") and Panmure Gordon ("buy up to £12") suggests only traders should apply. The rest of us should go away and do some homework. Or maybe mow the lawn!

| Link | Share
Merlotman 6th Jun 27 of 27

Logic suggests that today's SP fall is not driven by the negative sentiment on plastics as the investment community were already aware of RPCs product.
OK so the market is not always logical but was there anything in the figures to justify such a big move?
Expectations were for a normalised eps of 71p. The extent to which this was missed is difficult to judge because I can't work out where Stocko got their prior comparable of 52.5p. However by looking at the reported basic EPS and adj EPS suggests that there may have been a miss of up to 15%. Add in disappointing ROCE and an increase in debt might account for the SP move. Still think it's overdone however...
NB I am long as this was one one of my NAPS selections

| Link | Share

What's your view on this thread? Log In to Comment Now

You can track all @StockoChat comments via Twitter

 Are LON:RPC's fundamentals sound as an investment? Find out More »





Stock Picking Tutorial Centre


Related Content
Getting more personal
Getting more personal
LON:RPC 21st Jan '14

Gathering earnings momentum
Gathering earnings momentum
LON:RPC 4th Oct '13

Focusing on core strengths
Focusing on core strengths
LON:RPC 28th Jun '13




Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis