Colorpak was the first company I ever profiled on this blog, and nearly a year later the share price has barely moved on almost non-existent volume. You’ll see from my original post that I’m hanging around for the FY12 results which should reflect some success at Colorpak’s integration of the Carter Holt Harvey business. I couldn’t help noticing that another small packaging business on my radar, Pro-Pac (PPG) was bought out for 45c per share – a 50% premium to their average price around the 30c mark. I even drafted a post back in May (never published) outlining PPG’s potential. The company was just emerging from a disastrous 2008 and had a less healthy NPAT margin. Will the boring and pedestrian Pro-Pac end up being the longer-term winner?
Reviewing the FY11 figures shows that revenue is up from $80m to $125m, EBITDA margin has fallen from 18% to 12%, but EBITDA and NPAT have both shown a modest increase, even when accounting for the acquisition costs. With further integration costs to be realised in FY12, Colorpak won’t really see the light at the end of the tunnel until FY13, when integration costs and other expenses of approx $15m are realised in FY12. Given that only 4 months of CHH contribution has been accounted for, we can expect further erosion to group margins in FY12.
One of the ways Carter Holt Harvey polluted the rest of the ~$600m packaging market was their low pricing, which is why CKL were able to buy $120m worth of revenue for $5m – the EBITDA of $4m show the narrow margins CHH were operating on. CKL should show significant improvement to this, and with a presumably more disciplined pricing approach should improve margins over the coming years.
You can also read broker reports which Colorpak post on the Investor section of their website. Both the Merrill Lynch and Pegasus Securities reports have rated CKL for share price appreciation, targeting 89c and 83c respectively (Please note however the bias that any broker covering CKL is likely to be rating it as a buy). The reports are better used to learn information not normally disclosed through the regular shareholder channels (including industry intelligence).
Despite the big costs CKL is facing shorter-term, I’m positive about Colorpak’s longer-term prospects and will continue to hold through to the end of FY13. Barring share price appreciation to the point of over-valuation, CKL will be another forever stock for me.