Can perform

2011-06-16 00:00

The interim results from Nampak – Africa’s biggest packaging company – are evidence of the quality of its management’s decision-making capabilities.

Nampak [JSE:NPK] manufactures cans, boxes and bags for the consumer market and, as such, performance is closely correlated to household demand, whose recovery has been somewhat short of buoyant over the past year.

Even so, interim numbers to end-March 2011 reflect improvements in trading margins in all three major divisions despite cost pressures in certain areas and declines in demand for certain products, such as fruit and vegetable cans.

The gains in the margins are one of the key differentiators between Nampak and rival Astrapak, which also reported financial results recently and has still some way to go in that regard.

“Nampak is proving to be the safer bet investment at this stage, while Astrapak still has quite a bit to prove,” says Mark Hodgson, analyst at Avior Research.

In terms of pricing, Nampak is a slightly more expensive buy at an earnings multiple of 12,83 versus the industry’s 10,37 (according to Bloomberg) but offers investors looking for a healthy dividend distribution more bang for their bucks, with a dividend yield of 4,18%.

Nampak has opted to reduce its dividend cover (which indicates how many times profits could have paid for dividends) to 1,6 on continuing operations, based on its strong financial performance and the lower level of gearing.

Net debt to equity at Nampak fell from 33% a year ago to 23% at end-March, after it used proceeds from the sale of four non-performing business units to pay off loans.

Another noteworthy development is the completion of a can-making facility for beverages in the high volume market of Angola, with R120m being spent over the past six months. One analyst commended Nampak’s strategy in that fast-growing market, saying its capital heavy investment is likely to go some way towards deterring future entrants.