Thrace Plastics (Athens: PLAT) reported Q1 results during the period. The results showed material progress on the company’s major capital projects, which began 18 months ago. Volumes grew a robust 18%. Two material, and in our opinion temporary, items resulted in an 11% decline of earnings before interest and taxes (EBIT).

First, a sustained and steady increase in commodity input costs pressured margins. Pricing actions, given the dynamics, were slow to be applied but have since been implemented; and commodity prices have since moved in the opposite direction. This is a normal feature of the business, and can lead to temporary periods of either over- or under-performance on margins.

Secondly, much of the incremental volumes filling the company’s major capital projects is not yet in an optimized product mix. We expect this to change during the next 12 months.

Shares remain quite cheap at tangible book value, 9.5x trailing earnings, and approximately 8x 2017 earnings. We see scope for earnings to potentially double off the trailing figure during the next three or four years. Matt met with management in New York City at a recent investor conference.

This post has been excerpted from a letter to partners of Boyles Asset Management.