OPINION: Sector: Building Materials/Chemicals
Overview: Nuplex's great result always seems to be just around the corner. Unfortunately it has never quite managed to deliver the lofty ambitions its acquisition strategy promised. Its acquisition strategy has turned the company into a world leading developer and supplier of polymer resins and other materials used in products such as paints, plastics and adhesives.
Pros: The Company's position leaves them well placed to benefit from a recovering world economy. Nuplex now generates 80 per cent of earnings from Asia, Europe and the Americas, up from just 55 per cent three years ago. It placed particular focus on Asia, recently commissioning its third factory in China to ease capacity constraints it was encountering in the area. Nuplex are also making ground on its cost cutting exercise which has seen it close factories in NZ and Australia to better align its production with its sales.
Cons: The expectations of steady growth in Asia are contrasted with subdued expectations in Australasia and modest growth prospects in the Americas and Europe. Management lowered the earnings expectations when the half year result was released in February. This earnings downgrade is one of many in recent years, interspersed with the odd profit upgrade. This is something that is guaranteed to turn off investors, who crave certainty and much prefer companies that under promise and over deliver. Much of this uncertainty may be out of management's hands, as the company's cost base is dominated by raw material costs (which are highly influenced by petrochemical and oil prices).
Price performance: The share price is flat for 2014, recently trading at $3.37. Any shareholders who bought in before 2009 will be below water and are likely to remain so for some time with company sitting more than 70 per cent below all time highs hit in 2007.
Investment outlook: There is potential for a rerating of the company if/when the company finally starts to achieve consistent results. At the moment the company trades at attractive earnings ratios in part due to the uncertainty around earnings.
*A Broker's View is written by Grant Davies, Authorised Financial Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, which may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.