Pact Group Holdings Ltd (ASX: PGH) will tomorrow release its financial results for the six months to 31 December 2014. The resilient and dependable largest supplier of rigid plastics packaging in Australia and New Zealand is predicted to deliver earnings growth of around 5% this financial year on revenue growth of 6%.
Acquisitions and Growth
Pact is in a largely consolidated, slow moving industry dominated by itself and larger rival Visy group. Pact controls approximately 40% of the local rigid plastic packaging market, focussing primarily on non-discretionary items like milk, fresh produce and bakery goods. This combination produces reliable revenue but also limits growth.
To combat this, Pact has made upward of 30 acquisitions over the last 10 years and is expanding into Asia. Pact has five manufacturing plants in Asia to service the Chinese, Thai, and Philippines markets that are predicted to grow at double the rate of more developed countries like the US and Australia.
The biggest benefit of this expansion is that it reduces the group's reliance on any one contract or customer. In the 2013 financial year, the top 20 customers accounted for 43% of revenue, which will have decreased with recent acquisitions. Furthermore, the top 10 customers have remained with Pact for over 10 years.
What to Expect Tomorrow
For the full-year to 30 June 2015, Australian analysts are expecting Pact to achieve profit growth of approximately 5% to $89 million and earnings per share of 30 cents. Investors should therefore look for profit of approximately $45 million in the first half.
Of interest will be the company's comments surrounding the expansion into Asia, any recent contract wins in the Australia and New Zealand market and margin growth or contraction in Australia and New Zealand. This will demonstrate the amount of discounting rivals are willing to make to win market share, and the impact of a lower Australian dollar on input costs.
Concerns
Pact will only suit investors willing to accept lower growth and a dividend yield below 4%.
