Pental restructure gains momentum

Pental (PTL) has announced an excellent first half result, increasing our confidence that the company’s restructure is on track.

A highlight of the result included the large earnings before interest, tax, depreciation and amortisation (EBITDA) margin gains, displaying that recent efforts to invest in its facilities at Shepparton and improve efficiency have been successful. EBITDA increased 37% to $4.9m, despite revenue only increasing 3.2% to $53.8m.

The other highlight of the result was the large increase in net profit after tax (NPAT) from $0.247m to $2.147m. This was driven by the $2.4m reduction in finance costs.

The company’s balance sheet is now secure with net debt down to $4.7m and gearing (Net debt/equity) down to 6.7%. Further evidence that the company is back on track is the new banking facility that removes current restrictions on dividends and capital investment. Management stated that they will consider re-instating the dividend at the full year.

With increased bleach plant (White King) capacity, recent new tender wins, and further efficiency gains there is upside risk to our full year 2014 profit forecast of $4.3m. The recent new branding and product initiatives combined with the increased capacity and efficiency of facilities should also see stronger revenue growth flow through in FY15 and FY16.

Whilst the FMCG market will remain competitive and challenging, PTL’s re-structuring initiatives and Australian made and owned status will ensure continued growth for the next 2-3 years. Our view on the stock is discussed here.