RPC – my own thoughts

Sharescope’s Phil Oakley released an article today, outlining his thoughts on RPC (RPC Group).

The first thing that struck me was the worrying chart:


Encountering resistance at the 50dMA was a disconcerting development. The chart is making lower highs and lower lows: a definite bearish indicator.

Although it is trading at a PE of only 11, there are two things that I am particularly concerned about:

  1. the debt is too high. It made a PBT of £155m against net debt of £1087m
  2. the average ROCE for the company has never seemed to be particularly high, but Stockopedia reports the latest figure at 5.24%, which makes it unattractive.

The company issued a positive outlook when it reported on 7 June 2017, but it did contain a lot of management-speak.

According to Sharescope, the company has increased its dividends 24 years in a row. It also appears to be acquisition-hungy, which is rarely a good sign. The company has also raised substantial amounts of money over the last three years using a combination of debt and equity. Given that the company is on a PE of 11, it seems that the market is becoming fatigued by its eagerness for capital.

And therein lies the trap. I have seen this many times before: just because a company has raised its dividends X years in the past, it doesn’t necessarily mean that it is safe. The huge debt pile, coupled with low ROCE means that it could face a huge smackdown if something goes wrong.

I would not like to buy into this company, as there are too many risks for my liking. It’s nearly impossible to say when (or indeed if) the wheels will come off the wagon, but when they do, it will be a mess. I think a lot will depend the market’s appetite for risk. If the capital markets dry up (bearing in mind that I can’t offer a timescale for this), then RPC might be subject to a visit from the Reality Adjustment Bureau.

Let’s see if, in a year’s time, my bearish view was justified.





About mcturra2000

Computer programmer living in Scotland.
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4 Responses to RPC – my own thoughts

  1. stepheniles says:

    I’ll need to read Phils article a few more times with plenty of coffee to get to grips with most of what he says. For me a declining share price, rising average shares and rising debt says “avoid”.
    Do you know of a good “accounting” resource to help clarify Phils thoughts ?

    • stepheniles says:

      Ah, the sharepad website ………

    • mcturra2000 says:

      No good accounting resources spring to my mind offhand. However, your comment about ‘declining share price, rising average shares and rising debt says “avoid”’ suggests that you have a fairly good handle on things.

      You may already be aware of this, but Paul Scott’s Small Cap Report on Stockopedia
      http://www.stockopedia.com/columns/the-small-cap-value-report-1/ may prove a useful resource. It’s not an accounting resource as such, as he provides commentary on companies in the news. However, accounting issues are often discussed, particularly with regards to “gotchas”. So it’s a useful read.

      Check out my blog roll, too, as the people I link to often refer to accounting issues when they analyse accounts.

      I hope that helps.

  2. Pingback: RPC followup | Mark Carter's blog

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