Mark Watson-Mitchell thinks he may have found the next Robinson in plastic products manufacturer Coral Products.
In early April last year, I profiled a little packaging company that had some undervalued property.
That company was the Chesterfield-based Robinson (LON:RBN), featured at 55.5p with a Target Price of 80p*. Others soon realised the company’s potential and its shares peaked at 179p, before easing back to the current 150p – so a very successful profile.
So, this is another ‘little cracker’
Well, the company that I am profiling today has very similar attractions, it too is in the packaging sector and has undervalued property.
Furthermore, I consider that its shares could easily double, if not treble over the next few years.
I first came across Coral Products (LON:CRU) way back over two decades ago. At that time it was involved in the manufacture of compact disc cases.
The company was listed on the main market from April 1995, before moving to AIM in August 2011.
Over the years it has amended its service and product profile several times, adapting itself to the changing times of its various customers.
We all see its products
Based in Wythenshawe, Manchester, the company is a manufacturer and distributor of plastic injection, extruded and blow moulded products, supplying into a diverse range of sectors including food packaging, personal care, household, healthcare, automotive, telecoms and rail.
The group has manufacturing facilities in Wythenshawe, Greater Manchester and a distribution facility in the nearby Hyde.
On Christmas Eve last year, it announced the £8m agreement to sell off two of its subsidiaries, Coral Products (Mouldings) and Interpack, to One51 ES Plastics – the UK subsidiary of the IPL Plastics Group.
Disposals leave it cash and asset rich
That disposal was concluded in March this year, giving the group the ability to rationalise its legacy debts and leave it with around £4m cash in the bank.
It also paid off the entire £1.6m mortgage balance on the Haydock property used for Coral Products (Mouldings), which the new owners have leased back for ten years, at the current £300,000 a year rental.
However, after roof repairs, currently underway, the rent will be increased to £340,000 pa.
What is left
The group, at the same time as the disposals coming to fruition, announced the net £1.25m acquisition of Customised Packaging, a locally based complementary business.
The group now is split into three operating subsidiaries – Global One Pak, Tatra Rotalac, as well as Customised Packaging.
Global One Pak
Global One Pak, which is based in Manchester, is a leading provider of own designed lotion pumps, disc top closures, serum pumps and mist sprayers.
It operates in 20 countries across four continents as an international market supplier to many well-known brands as it sells into the personal care, automotive, household and garden and the pet care and equine sectors.
Its clients include Morrisons, Asda, Waitrose, Aldi, Tesco, Lidl, M&S, Sainsbury’s, Wilko, Simoniz, Jeyes, Yardley, Arm & Hammer, Elemis and WD-40.
Tatra Rotalac
Tatra Rotalac is the UK’s leading plastic extrusions manufacturer providing custom extrusions, PVC profiles and injection moulding.
That ranges from products including standard profiles, telecoms sleeves and ducts, rail pads and sleeper inserts, tambour doors and roller shutters, core liners, hygienic coving, cable fillers and separators, kitchen and bathroom sealing strips, liquid dispenser tubes, ticket strips, click+fix planks, as well as box handles.
It has a wide customer base in diverse markets including building, telecoms, aerospace and rail.
Customised Packaging
Customised Packaging designs, supplies and manufactures plastic products, using top-of-the-range sheet extrusion technology and vacuum forming capabilities to its network of blue-chip customers.
This company’s services take in fabrication, vacuum forming, sheet extrusion, butt fusion, design, services (such as delivery and transport), and quality control.
Its clients on the automotive side include Toyota, Bentley, Honda, Siemens VDO, Vauxhall, Hitachi, TRW, Nissan, Ford, Rolls Royce, and TDS.
The no-automobile sector business customers include Dixon Retail, Perkins, Schoeller Allibert, Airbus, JCB, Kellogg’s, Clinipak, NEXT, Sainsbury, Kuehne + Nagel, Laminar Medica and LFE.
Shareholders to note
There are some 84.67m shares in issue.
Directors of the company and its subsidiaries hold 21% of the equity.
The company recently purchased 275,000 of its own shares @ 13.5p, taking its holding in Treasury up to 1,275,000 shares.
Larger holders include Chelverton Asset Management (8.14%), Miton Asset Management (7.06%), BTO Monarch Luxembourg (6.00%) and Peter Gyllenhammar AB (3.3%).
There are also a large number of shares held by the nominee companies of Jarvis, Rathbone, Hargreaves Lansdown, Interactive Investor, Barclays Direct and Charles Stanley – which could indicate a considerable scattering of private investor holdings.
New broker and Nomad
Early last month brokers WH Ireland took over as Nominated Adviser and Corporate Broker to the company.
Last Friday their analyst Jason Streets published his research on the group, in an 18-page report.
For the last year, to the end of April 2021, he forecasts £10.00m of revenues and pre-tax profits of £0.69m, generating 0.83p of earnings per share.
However, those figures are largely irrelevant to me as I look at the group going forward.
He estimates sales of £11.7m in the year to end-April 2022, making £1.09m profits, worth 1.27p in earnings. By the end of that year, he sees net cash rising to £5m, with net assets increasing to £14.9m.
Doubling revaluation for Haydock property?
It is worth noting that there could well be a revaluation of the Haydock property, with the $700m group as new tenants @ £340,000 pa. I would guess that the value would almost double book value, assuming just a 7.5% rent return.
Is WH Ireland being too cautious? There is nothing wrong with that, but I actually consider that the group’s shares could rise significantly above its ‘fair value’ range of 15p-18p. I see them doubling and then some.
Do your own sums
Just think – a market capitalisation of only £11.8m, with £4m cash in the bank and rising to £5m by this time next year, with an unmortgaged property let to a substantial US group worth say £5m, three complementary businesses dealing with top-name customers turning over nearly £12m and making well over £1m profit – I am convinced that the shares will rise a great deal higher.
Any use of the cash will be beneficial
And just think what could happen if the company makes an acquisition using some or all of its cash – instantly earnings enhancing – the equation gets so much better.
I am positive that the management will not stand still and just look at its cash pile, instead I feel that it will need to make it work to the advantage of the group and its shareholders, as it pursues its growth strategy.
My view
At the current 14p the shares of Coral Products are a ‘cracking’ bargain – don’t miss it.
Although I see them going so much higher in due course, I now set an easy 18p Target Price.