Making plumbing components and manufacturing pipes is hardly the most glamorous and exciting business, but it is an important business and it’s one Polypipe Group (LSE: PLP) knows well. This morning the company published its results for 2016, and the figures make for good reading. Revenue grew 24% to £437m up from £353m in 2015, generating an underlying profit of £69.4m compared to £54.2m. The group’s profit margin improved to 15.9% from 15.4%.
Reported pre-tax profit for the period jumped 31% to £54.4m from £41.5m in 2015. Excluding acquisitions on a like-for -like basis, UK revenue grew 11% and overall revenue rose 9.1. Export revenue expanded 29% year-on-year leading management to conclude that so far, there’s been no discernible impact from the EU referendum on the group’s operations.
Off the back of these figures, management is now so confident in Polypipe’s outlook that it has decided to hike the plastic piping manufacturer’s dividend by almost 30%.
No surprise
2016’s impressive figures should come as no surprise to Polypipe’s investors as the firm has a record of outperforming. Over the past four years, the group’s pre-tax profit has more than doubled rising from £24.6m to £54.4m and earnings per share have increased by 150% from 10p to 25p. Over the same period, management has increased the firm’s dividend payout from zero to 10.1p per share, for a dividend yield of 3% at current prices.
Unfortunately, City analysts expect the company’s growth to slow down. Earnings per share growth of only 6% is pencilled-in for 2017, but I believe the company could end up blowing this forecast out of the water based on historical growth figures. Shares in Polypipe currently trade at a forward P/E of 13.4, which seems cheap considering the company’s historical growth rate and likelihood that the firm will continue to outperform.
Growth stumble
Polypipe is a boring but impressive business and so is rubber components producer Avon Rubber (LSE: AVON). Between fiscal year-end 30 September 2012 and 30 September 2016, Avon’s earnings per share nearly tripled rising from 27p to 74p while revenue increased 40%. Over the same period management hiked the firm’s dividend payout per share from 3.6p to 9.5p and the shares currently support a dividend yield of 1.3%.
After Avon’s explosive growth since 2012, City analysts expect the firm to take a breather this year with earnings projected to fall by 13% for the fiscal year ending 30 September. Nonetheless, after a short rest growth is expected to take off again during 2018 with and earnings per share rise of 8% pencilled-in for the following fiscal year.
Like Polypipe, Avon is also trading at a mid-teens earnings multiple, which might look expensive at first glance but is appropriate considering the firm’s historical growth rate and considering what the company can achieve in future. Shares in it currently trade at a forward P/E of 14.7.
