Orora (ORA) – Bottled up

Orora designs and manufactures aluminium cans and glass bottles, principally for beer, wine and spirits, in Australia, New Zealand, the US and Europe. Orora was incorporated in 1949 and is headquartered in Hawthorn in Melbourne.

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Ord Minnett reviewed its Orora (ORA) model to incorporate continued downbeat data on the liquor industry, the bottle- and can-maker’s key market, and commentary from liquor retailers, such as Coles (COL) and Endeavour (EDV). The nature of glass manufacturing is that kilns are high fixed-cost assets designed to be running, and they are difficult to ramp up or scale down quickly, which typically drives companies to chase volume growth – at the expense of price – to maintain plant capacity when industry demand drops.

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Data from analytics group Nielsen shows American spirits volumes fell 7% year-on-year (YoY) in the three months to mid-June, while in Europe, spirits volumes lost 3.5% YoY in the three months to mid-May. Meanwhile, in Australia, retailers such as Coles noted a sharp deterioration of circa 20% in sales from its big-box liquor stores in the March quarter, as consumer sentiment took a hit from the energy shock sparked by the Middle East war in what was already an interest-rate-constrained environment for households. Industry leader Endeavour, which is reshaping its business model, has performed better, but this is only on a relative basis rather than due to any broad industry upswing.

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Ord Minnett also highlights the risk of a material write-down of the value of its Saverglass business – bought for $2.2 billion in 2023 but now seemingly valued by the market at circa $850 million – and its Gawler plant – where a $200 million investment was recently made in plant upgrades and repairs – unless end-market demand starts to revive.

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Post our review, we cut our EPS estimates by 0.8%, 13.1% and 11.7% for FY26, FY27 and FY28, respectively, to incorporate downgraded volume forecasts, with the Saverglass business feeling the deepest cuts. These downgrades led us to cut our target price on Orora to $1.55 from $1.70, while we maintained our Accumulate recommendation on valuation grounds.