Astrapak: A tighter parcel

© Maitree Laipitaksin – 123RF.com

It hasn't always been this way. Five or so years ago these were the shares investors were chasing. But the industry, its technology and its customers have changed.

Part of the problem, says Jan van Niekerk, CE of asset manager RECM, is that investors are steering away from companies that look to the SA economy for much of their business. This is certainly the case with the packaging companies.

Yet RECM, which specialises in finding and buying unpopular shares offering potential value, is approaching the packaging industry, and its entry point has been Astrapak. "We like entrepreneurial businesses and Astrapak is trading at a significant discount, even to book value," says Van Niekerk.

Better results

Astrapak last Thursday released financial results for the year to 28 February 2015. They weren't good. The income statement is awash with red ink. However, in some areas there has been an improvement.

CE Robin Moore says results are going to get better. The business he's heading now is a radically restructured Astrapak. It's hardly recognisable from the company of two years ago, and probably for the better. The restructuring has entailed the sale of a number of businesses and assets it considered nonprofitable or noncore to the company.

The group has been reduced from 23 manufacturing facilities about two years ago to nine now. Moore says these are focused plants that will position Astrapak well in the markets in which it operates and make it competitive.

The aim of the restructuring and forward strategy is best summed up in the following quote from Moore: "Astrapak group revenue has halved, [owing to] the strategic objective of earning more on less turnover generated by fewer fixed assets and far fewer people in the markets in which we hold leading positions."

The dog

Astrapak was a market darling a few years ago, but it has turned into a dog. But dogs can come back, and this is what Moore is aiming at through the restructuring, which has brought in R148m in asset sales during the past year.

A further R149m will be realised in the coming year through transactions which are still being finalised.

Moore, who became CE fairly recently and earlier had a long career with competitor Nampak, explains what went wrong at Astrapak: "I think it didn't start consolidating operations and putting in internal controls in time. We were not quick enough."

Moore adds that results should improve in financial 2016, but he is targeting financial 2018 as the year when Astrapak will be getting the optimal returns it is aiming at.

"We said upfront we were working on a five-year plan, which is why the target date is financial 2018," Moore says.

Cost of strikes and outages

The company is carrying a number of costs, which should be eliminated by then. In the past financial year it was hit by heavy, irrecoverable expenses in two ways. "The widespread strikes cost R30m. Electricity outages proved seriously disruptive. The gross contribution lost to electricity outages in the final quarter was R5m."

As expected, Astrapak did not pay a dividend. It has not done so since 2011, though it does pay dividends to preference shareholders.

The share price, which has lost nearly 50% in the past year, is dirt cheap at present, trading at less than half of net asset value.

So is this a share to buy now on a three-year view?

"The improvement should come through earlier," says Van Niekerk.

Source: Financial Mail via I-Net Bridge