Coral Products – Do Recent Results and Broker Updates Inject Value?

It was not until Wednesday of this week that the Manchester-based Coral Products (LON:CRU), the injection moulded plastic products group, announced its final results for the year to end April 2022.

They were good and clearly indicated that the company has reshaped itself after recent disposals and acquisitions.

Its newly appointed broker and NOMAD, Cenkos Securities, was bullish enough to initiate coverage of the group with a 27-page research document, which concludes with a Buy rating for its shares.

The Business

Coral Products is a UK based company specialised in the manufacture and distribution of plastic products including extruded and vacuum formed products, injection moulded products, and films and laminates.

The company operates five subsidiary manufacturing facilities located around the Manchester area.

Markets segments served include telecom, rail, automotive, healthcare and packaging applications.

Tatra-Rotalac is a leading provider of plastic extrusion and injection moulded products serving customers in sectors including building, telecom, aerospace, and rail.

Global One Pak designs, packages, and distributes lotion pumps, closures and trigger sprayers for applications including personal care products and household products.

Customised Packaging Ltd designs and produces specialised packaging such as crates and cases for transportation of products or components, with customers including McLaren, BMW, and JCB.

Film & Foil Ltd is one of the UK’s largest converters and stockists of flexible packaging films, print laminations films, and specialty plastics, paper and aluminium foils. Applications include food packaging, cable tapes, and books and brochures.

Alma Products specialises in extrusion, thermoforming and container printing, providing products for applications including the food packaging pots tubs & trays market.

Brokers View – in a strong financial position

Cenkos considers that the company delivered a resilient performance during the pandemic and emerges now in a strong financial position to act as a consolidator within the industry in the post-pandemic environment.

The results for the year ending 30 April 2022, showed strong progress.

It reported £14.4m (£10.71m) of revenue and underlying pre-tax profits of £1.49m (£0.76m).

There was a good cash performance with an operating cash flow of £2.7m for the year.

The results reflect the inclusion of Customer Packaging Ltd, which was acquired in March 2021 and which has performed well since the acquisition.

Also, during the period, the company completed the disposal of land and buildings at its former operating site in Haydock Merseyside for some £3.5m.

There have been a number of significant events post year-end, notably the acquisitions of Film & Foil Ltd and Alma Products, both announced in May 2022.

Cenkos argues that the FY22 results demonstrate strong operational progress as well as positive benefits from the strategic actions undertaken during FY21 and FY22.

Current and prospective year estimates

For the current year to end April 2023, its analyst Edward Stacey has estimated £32.10m revenues and £1.89m profits, with earnings of 1.87p and a dividend of 1.20p per share.

For the 2024 year his estimates are a cautious £35.20m sales, £2.09m profits, earnings of 2.07p and a 1.30p per share dividend.

It also considers that the current valuation of Coral Products does not reflect the earnings quality or growth potential of the business, with its shares trading on a price-to-earnings ratio of only 7.5x for FY23.

My View – looking for an easy 25% upside

One analytical comment suggested that over the last three years on average, earnings per share have increased by 73% per year but the company’s share price has only increased by 21% per year, which infers that it is significantly lagging behind its earnings growth.

I like this little group, capitalised at just £12m, and despite the time taken to get its deals sorted out and into effect, I reckon that its shares are now ready for another run up to the 20p level, last reached in early June this year.

In fact, Cenkos has put out a ‘fair value’ of 20.8p on the group’s shares.

And considering that it is trading it is on a current year yield of 8.5% and a prospective yield of 9.2%, that makes the shares a cracking little investment, with a lovely income to boot.

That broker valuation implies a 48.5% upside to the current share price of 14p.

The shares make a very attractive purchase.

(Profile 28.04.21 @ 14p set a Target Price of 18p*)

(Asterisks * denote that Target Price have been achieved since Profile publication)