Polythene products manufacturer British Polythene Industries (BPI) looks a prime candidate for further earnings upgrades this year after reporting better-than-expected first quarter trading and completing the sale of its Chinese subsidiary.

Lower energy costs and favourable foreign exchange rates have resulted in a stellar start to the year, persuading investment bank Investec to lift its 2016 adjusted pre-tax profit forecast by 3.7% to £30.5 million. This is 11.3% higher than the £27.4 million profit produced in 2015.

‘We continue to see scope for further upgrades as the year progresses,’ says Investec analyst Thomas Rands.

The £196 million cap has sold its underperforming Chinese subsidiary for £9.7 million - slightly higher than original guidance of £9.4 million - which will result in £8.7 million cash inflow in 2016.

Investec reckons BPI’s net debt will fall by £9.8 million to £15.4 million this year - just 0.3 times adjusted EBITDA (earnings before interest, tax, depreciation and amortisation).

Rands says BPI deserves a meaningful re-rating. At 725p it trades on a price to earnings ratio of just 8.9 and has a free cashflow yield of 10%. Investec has lifted its target price for the second time this year - to £10.30, implying 43% upside.

Bag a bargain at 725p.