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Pact Group share price up as dividend restored

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The Pact Group Holdings Ltd (ASX: PGH) share price surged this morning after the company released its full-year earnings for the 2020 financial year.

Pact shares closed at $2.36 yesterday, but have opened higher at $2.40 this morning. After rising as much as 9%, the Pact share price has settled somewhat and is up 6.3% to $2.52 at the time of writing.

It’s a rare piece of good news for shareholders, who have had to watch the Pact share price drop from nearly $7 in 2017 to less than $1.50 back in March.

What did Pact announce this morning?

It was a mixed bag of results for Pact today. The packing solutions provider reported $1.809 billion in revenues, down 1% from the $1.834 in FY19. Statutory earnings before interest, tax, depreciation and amortisation (EBITDA) were $302 million. Adjusting for the adoption of AASB16 leases, EBITDA was  $234 million, up 1% on FY19. Net profits after tax (adjusted) were up 5% to $81 million. If significant items are included, this rises to $92 million from a -$290 million loss in FY19.

Meanwhile, earnings per share (EPS) went from a loss of -85.3 cents in FY19 to a statutory 25.8 cents in FY20 (or 26.7 cents adjusted). The company managed a return on invested capital (ROIC) of 12.6% (adjusted) which was a 1.5% improvement on FY19’s 11.1%.

Dividends make a comeback

Perhaps the biggest news from Pact Group’s earnings was the resumption of dividend payments. Pact hasn’t paid a dividend since 2018 after scrapping its payments last calendar year. Pact shareholders receive a 3 cents per share dividend, franked to 65%, on 7 October. It’s a long way from what shareholders would be used to (Pact’s last dividend in 2018 was 11.5 cents per share). But it’s a pleasing development, nonetheless.

What’s ahead for the Pact share price?

In terms of outlook, Pact gave no concrete guidance, but expects its diversified portfolio to be “resilient, with trading in the first quarter of FY21 in most sectors to be generally in line with recent trends”. The company told investors that a trading update on FY21 will be provided at the company’s annual general meeting on 18 November.

The company did recommit to its 2025 goals of a ROIC of 15% and being in the top quartile for shareholder returns.

Pact also announced the formalisation of a joint venture (to be called Circular Plastics Australia) with Japan’s Asahi Beverages and Cleanaway Waste Management Ltd (ASX: CWY) to develop a $45 million recycling facility in Albury/Wodonga. The new centre (which Pact will have a 40% share of) will be capable of recycling around a billion PET bottles a year and, according to the company, will “lift Australia’s PET recycling capacity by 28,000 tonnes, or 50%, to 85,000 tonnes”.

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Motley Fool contributor Sebastian Bowen owns shares of Pact Group Holdings Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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