What: Print and distribution company PMP Limited (ASX: PMP) rallied 20% last week after management provided the market with an upbeat assessment of its business outlook.
Last week's share price jump brings the total gains for shareholders over the past year to 31%. In comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is registering a gain of less than 1% over the last 12 months.
It should be noted however that the long-term performance of PMP remains dismal.
So What: The announcement stated that the group, after three years of intensive restructuring "now has a higher degree of confidence in the outlook for the business, and subject to market conditions expects this strong performance to continue into the foreseeable future."
It's a great vote of confidence to hear from the board and was backed up by an update on the company's performance over the 11 months to 31 May 2015 which included a forecast for full year free cash flow of $34 million.
Dividends might not be too far away
Shareholders last received a dividend in April 2012, so news that it's the board's intention to commence a capital management program post the release of the group's full year results is no doubt music to the ears of long-suffering shareholders.
It's not certain that shareholders will be receiving dividends however with possibly a buyback used as the means to return funds to shareholders. Talk of a buyback is interesting – it is partially a factor of a low franking credit balance but it may also give investors some insight into the board's view on where the share price sits in relation to their appraisal of fair value.
Now What: The timing of PMP's upgrade and share price rally is ironic given it came almost simultaneously with the news that initial public offering (IPO) hopeful IVE Group, a printing and marketing company, has decided to shelve its plans for a $100 million float. According to a report in the Australian Financial Review, Evans & Partners analysts valued IVE on an enterprise value (EV) to earnings before interest and tax (EBIT) at 8.9x to 10.9x.
The news release from PMP was welcome news for shareholders and more positive than what investors have come to expect from the group. Given the possibility of further good news flow from PMP, particularly around the reinstatement of a dividend and further debt reduction, the question must be asked if there are further legs in the current rally.
There certainly could be if positive news flow continues and the stock is still only trading on a financial year 2015 EV to EBIT of less than 7 times.
