By Bruce Williams
Amcor (AMC) is a global packaging manufacturer that’s positive about the future. With an incredible amount of focus on single-use plastics and recycling, AMC is looking to identify innovative solutions and quickly bring them to market.
AMC runs an innovation centre in the U.S. that is exploring new materials and production methods. This focus on R&D has the potential to generate a first mover advantage in cost effective responsible packaging. If management can execute on the opportunity, this could deliver big gains in market share across a broad range of categories including food, beverage, and pharmaceutical packaging.
Broadly speaking, there are two main types of packaging that AMC produces:
- rigid packaging, such as glass, hard plastics, aluminium cans and cardboard
- flexible packaging, including foil, paper and plastics
We believe that AMC’s revenues are defensive with the majority of its production used in the fast-moving consumer goods and healthcare segments. In addition, as it is one of the world’s largest packaging companies, its revenues are diversified by product, client, and geography.
In mid-2019, Amcor completed the purchase of Bemis utilising equity. We know that this is a relatively expensive form of financing in the current environment. We are also cognisant that acquisitions of this size are rarely integrated without any problems arising. However, we view this as a complimentary acquisition due to the scale it provided across all geographies, management depth and product compatibility.
Over the next couple of years, we expect to see significant cost synergies realised, as well as the potential for revenue synergies through an improved service offering.
In terms of growth, we would not expect to see anything greater than GDP growth at the revenue line. But as the company has high fixed operating costs and excellent cash generation, we expect the business to benefit from operating leverage and ongoing capital management. For the shareholder, this means earnings per share should increase in the low double digits, plus receive a consistent dividend of approximately 4% per annum.
In summary, we view Amcor as a high-quality business that is currently trading at a sensible price, a combination that can be hard to find.
If you would like more information please call 1300 ELSTON or contact us to speak to one of our advisers.