PLASTICS CAPITAL (PLA) - 32.5p

Plastics Capital manufactures plastics products for niche markets. It supplies into the UK and also exports to North America, Continental Europe and Asia Pacific. The company was founded in 2002 and has grown through acquisition and trades from factories across the UK as well as one in Thailand, with sales offices in Boston in the United States and Tokyo.

There is scope for organic growth from the existing businesses, but further acquisitions are also likely when conditions are right and on the basis that further financing is available at the time.

Having only joined AIM less than two years ago, Plastics Capital has disappointed shareholders to date. Although the business has been growing, profits have fallen short of expectations and the fact that the balance sheet is relatively highly geared means that the shares have been friendless.

On September 21 a trading statement from the company sparked some interest and the share price jumped from 25.5p to 34.5p on the day. A number of directors own sizeable stakes in the business and will clearly be striving to build value.

Results for the year ended March 31, 2009 were released at the end of June, with the previous year's figures being restated to strip out discontinued activities. Revenue jumped by 40per cent to £28.2m (2008: 20.1m). Adjusted earnings per share were 10.0p (2008: 11.9p). No dividend was paid in either year. Cash generated from operations was £2.8m (2008: £0.5m).

The level of net debt rose from £16.3m to £19.6m. Given the size of the business which is capitalised at £11.9m, the level of debt is quite substantial.

The balance sheet also looks somewhat precarious given that net assets are £12.6m with intangibles accounting for £24.5m. Even now the debt is enough to take the company down if trading deteriorates.

The share price does reflect this risk element and under less extreme market conditions the borrowings would cause less concern.

The trading update released on September 21 was upbeat and confirmed that performance in the current year is going to plan. All businesses are trading satisfactorily, which is encouraging, as is news that debt is being serviced in line with expectations. The news caused a brief flurry of excitement but the company remains relatively unknown even though it can boast some big name fund managers amongst its major shareholders. Those willing to take a punt now have a good chance of seeing their holding multiply in value over the medium term.

WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek professional advice as to the suitability of the investments.