Bottom Line: BPI buys wisely

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The Independent Online
CAMERON MCLATCHIE, chairman of British Polythene Industries, says no one envies his position between suppliers the size of BP and Shell and customers such as Sainsbury and Marks and Spencer. Fears of a squeeze on supermarket margins explain why BPI's shares have underperformed the market by about 10 per cent in the past year.

Margin pressure is always a risk in BPI's business. Apart from the purchasing power of its customers and its sensitivity to commodity prices, barriers to entry are low.

Despite this, the company has steadily improved its performance thanks to its success in buying struggling businesses and turning them around. In two years it has made 15 acquisitions, only four costing more than pounds 3m. BPI, as Europe's biggest polythene manufacturer, can usually make an immediate improvement using its raw material purchasing power and management experience.

It also operates in mature, slow- growing markets. More than half of 1993's rise in turnover and almost all the rise in operating profit came from acquisitions.

The company admits that acquisitions are the only way to grow, and reckons it can continue its expansion policy in the UK for a few more years. On a prospective p/e ratio of 16.5, the shares are not demanding, and recovery in the UK will help profits in 1994.