Pact Group’s Share Price Recovers following Refinancing Announcement

It’s a good day for Pact Group Holdings Ltd [ASX:PGH], with their share price bouncing back up by 11.40% — despite their lower earnings forecast.

Investors must have been rattled by today’s news, with the announcement of Pact’s EBITDA for FY19 now expected to settle in the ‘low end’ of $230–$245 million range. It’s been a difficult 12 months for the industrial supply company, but one they may yet bounce back from.

The company has reported that this has been largely due to the manufacturing costs of raw resin, which Pact uses for its rigid plastics.

This morning, shares dropped to a low of $2.22 apiece following the news, but have since increased to $2.53, and remain so at time of writing.

Related: Learn our three favourite small-cap stocks right now, in a new brand new Money Morning report. 

Disappointing news for Pact Group

On top of their estimated earnings, the company has reported that ‘significant items after tax for the year are expected to be a loss of $370 million’. Only 12 months ago, the company was trading at $5.20 a share, but has since been beaten down through profit downgrades, write-downs and mountains of bad news.

However, just like Pact’s price movement today, we could be seeing a turnaround.

The company announced this morning that they have received approval to extend their debts into 2022 instead of July next year, which has cushioned their fall. Additionally, management was also pleased to announce a new $50 million unsecured term loan over the next six years, which come under ‘competitive terms’.

Pact Group’s Managing Director and CEO, Sanjay Dayal, said:

We are very pleased with the outcomes of our refinancing arrangements.

Near-term refinancing risk has been removed, we have increased headroom on our senior debt, and we have established an alternative financing source. Importantly, the arrangements are very cost-effective and give us the balance sheet capacity to continue planned rationalisation activities and create existing growth projects.

Pact appreciates the continued support from its long-term relationship banks and welcomes our new lenders.

What does this mean for investors?

With little competition affecting them, Pact may be able to recover from this loss in time. It has a relatively reliable source of revenue and profit streams in making products for fast-moving consumer goods.

And it seems some investors believe in their bounce back too, as we’re seeing in their price movements.


Ryan Dinse,
For Money Morning

PS: Click here to download your FREE report detailing the ‘Three Small-Cap Stocks to Own Right Now. Add them to your portfolio today!

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia