Nice Package

Amcor is a global packaging manufacturer with two key divisions flexibles and rigids. The flexibles business has operations in North America, Europe and the Asia Pacific region, and participates in the defensive food, healthcare, home and personal, and tobacco industries. The rigids division is exposed principally to the beverage and diversified packaging industry in North and Latin America.

 

Amcor recently delivered a first-half FY19 underlying net profit of US$328.5m, 1.2% above Ord Minnett’s forecast of US$324.7m. An unfranked interim dividend of 21.5cps was declared, slightly above our 21.0cps estimate. Operating earnings (EBITDA) for both the flexibles and rigids businesses were in line with our estimates, while earnings before interest and tax (EBIT) were boosted by a lower-than-expected depreciation and amortisation charge.

 

Modest underlying and constant-currency EBIT growth across both divisions, as well as the benefits from recent acquisitions and restructuring programs, were offset partially by a US$5m headwind from raw materials in flexibles.

 

Working capital has ticked up in recent years following the consolidation of key acquisitions. However, the 1H19 performance was much improved, driving very strong cash flow, with underlying operating cash flow rising 27% in the period.

 

Management retained its guidance for solid constant-currency EBIT growth for flexibles and rigids businesses in FY19. We expect growth of about 5% for both divisions, but for currency to offset gains in flexibles. Our EPS forecast changes average less than 1% over the FY19–21 period.

 

We believe the earnings outlook for Amcor is promising, with clearly identifiable drivers around a stable core, including the recovery of raw materials headwinds in previous periods, benefits from restructuring programs and – most significantly – consolidation of the recently acquired Bemis business and the generation of synergies. We continue to believe the acquisition of Bemis makes sound strategic sense from a commercial and operating standpoint. We maintain our Accumulate recommendation with a $15.50 target price.

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