The Pact Group Holdings Ltd (ASX: PGH) share price is moving higher on the back of strong half-year profits. We take a look at the details.
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With shares up 5.7% to $2.80 at the close of trade, it appears the packaging manufacturer’s results for the period ending 31 December 2020 have been well-received.
Profits well packaged by Pact
The standout result is Pact’s half-year net profit after tax (NPAT) of $49.9 million, up 43.5% from the previous corresponding period. This strong rise in profits was achieved despite revenue only growing by 1% to $894.4 million. Growth in the business’s reuse and crate pooling services contributed to higher margins.
Pact Group continues to work towards its Lead the Circular Economy strategy. During the half, such efforts include progressing on phase two of the company’s Australian packaging turnaround; enhancing recycling capability; and growing reuse volumes in the US.
Furthermore, the company nearly doubled its earnings before interest, tax, depreciation and amortisation (EBITDA) from contract manufacturing services. The segment added $20.7 million in EBITDA during the half, up 90.5% from the $10.9 million in the previous year.
Profits were further assisted by a reduction in financing costs during the period. Net finance expenses fell to $25.6 million from $33.1 million due to lower interest rates on borrowings.
What other surprises are in the box?
Shareholders are welcoming the announced dividend of 5 cents per share. After a cataclysmic year for dividends last year – dividend investors would be breathing a sigh of relief. While 5 cents may not seem like much, keep in mind Pact Group only provided 3 cents per share in dividends for all of 2020.
Pact also reduced the company’s gearing, which is essentially the debt to assets ratio of the company, to 2.4 times – down from 2.9 times. By taking this action, shareholders can rest a little easier knowing that if interest rates rise, Pact’s exposure isn’t precarious now.
The company’s ability to rely less on operating debt is due to the increased free cash flow. Free cash flow increased by 119% for the period to $46 million, giving the company more operational liquidity.
Pact Group share price snippet
Today’s rally places the Pact Group share price at $2.80, just over 14% higher than a year ago. It also puts it 7.7% higher than Morgan Stanley’s recent price target of $2.60.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.