Buy, Sell, Hold: Industrial strength

By Jenny Ruth

Saturday 1st November 2003

Nuplex is Australasia's largest manufacturer of resins and chemicals used in glues, printing ink and building products such as roofing, flooring and plasters. It has manufacturing plants in New Zealand, Australia and Vietnam and sells throughout South East Asia and the Pacific. It also provides specialty waste treatment services.

Vital Statistics
The company has been listed in New Zealand since 1967. It has grown through acquisitions to become one of three major players in New Zealand - the other two are multinationals. Its most recent purchases were of Australian Chemical Holdings (ACH) in 1997, Australia-based Medihold for $A21 million in January 2001, and Asia Pacific Specialty Chemicals (APSC) for $A60 million in July last year. While Nuplex has generally had an excellent track record with about 20 acquisitions, ACH took longer to integrate than expected and was also hit by the 1998 Asian crisis. And Medihold, which disposes of medical wastes, including needles, proved to be an unmitigated disaster, largely because it lost a key contract with New South Wales public hospitals. Nuplex finally sold Medihold in August this year for $A4 million and had to provide the finance on interest-free terms. Reflecting this torrid experience, net profit fell from $16.7 million in June 2000 to $1.3 million the following year. The company's most recent result, a $20.7 million profit, was a record. The success of the APSC takeover, which increased sales 50%, has done much to restore confidence in the company. Tower Asset Management holds 9.4%, making it the largest shareholder.

The share price fell through most of 2001 but has since resumed steady upward progress, gaining 23.5% in the past year, and is now close to $4. The shares are still relatively cheap, trading at just over 11 times earnings and providing a gross dividend yield above 8.5% based on forecast earnings, according to sharebroker Forsyth Barr, which recommends investors accumulate Nuplex shares.

Management
Long time and widely respected chief executive Fred Holland retired at the end of 2000 but stayed on as chairman. His successor was John Hirst, who had been with the company 34 years and previously headed the company's Australian operations for five years.

Current Strategy
While further acquisitions can't be ruled out, the company's prospects from existing operations in the current year look bright. It is at last free of the Medihold distraction (this year's result was dragged down by a $3.85 million write-down on Medihold), it expects to reap the full benefits of the APSC takeover this year and it commissioned additional capacity in Vietnam in July. The latter triples the Vietnamese operation's capacity, making it of similar size to the New Zealand operations. The Vietnam plant is already sufficiently profitable to have used up all its tax losses, which was the main reason the company's tax bill jumped 37.3% to $12.2 million last year. The buoyant building markets in Australia and New Zealand should also assist. The company also expects its raw materials costs, priced in US dollars, to be lower this year.

Recent Track Record
The company's recent progress has been blotted by legal and environmental problems at its East Tamaki waste processing site. It pleaded guilty to three discharge offences over the past year and the Environment Court ordered parts of the plant closed for two weeks because of concerns over fire risks. The company spent more than $200,000 in the past year upgrading the site and installed a new water and foam deluge system in August to reduce the fire risk. Chief financial officer Graeme Storey says the company expects returns from this operation to improve substantially this year. "We just need to get through these environmental problems."

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