Colorpak HY15 results: Disappointing (CKL)

When I originally wrote about Colorpak, I saw it as a better investment than Amcor for several reasons.  Now, looking at charts for both companies, Amcor as of today would have been a better investment.  The share price fell 22% on Friday, the lowest it’s been since July 2012.  So let’s review the numbers against HY14 and examine whether I should buy more, sell, or do nothing:

 

  • Revenue $84.1M, up 2%
  • Underlying EBITDA $6.5M, down 11.9%
  • EBITDA margin 7.7%, down from 8.9%

 

Now to the commentary, and it’s not too bad.  Profits are slightly up against PCP, though lower than expected due to slower uptake of benefits from the Victorian rationalisation.  Inefficiencies have also been identified at their facility in Braeside which should lead to margin improvement.  A positive free cash flow of nearly $3M was reported, much of which was used to reduce debt.  Dividends were reduced.

 

The business should benefit from a weaker Australian dollar over the medium term, and Colorpak appear to be having success selling their new paper cups to Supermarket brands.  I recently went to Coles and was impressed at the packaging of the Coles brand ice cream, which I’m assuming is Colorpak (Connoisseur brand is, their logo is on the bottom of the container).  Management’s comment about Supermarket pricing power was also interesting and is a positive sign.  Finally, there is a cost reduction opportunity for the NZ lease which expires in 2016.

 

My conclusion? This business is currently priced at $43M, about 13 times earnings.  There should be additional cost improvements over the next 2 years.  As I currently hold, I won’t be adding, although it’s a reasonable buy for a main street business.  If the share price drops below 40c without a change to the company’s fundamentals, I would increase my position.