The packaging industry may not seem like such an exciting space. But the thing is, you can find some rather attractive prospects. A company in the packaging market that deserves some attention is Amcor (New York Stock Exchange: AMCR). Based in Switzerland, the company has more than 230 sites in no less than 43 different countries. It provides packaging services for food, beverages and even healthcare. All things considered, the company has done very well from a fundamental perspective lately. But that doesn’t necessarily make it a great prospect for investors. Yes, the company’s shares are trading at attractive levels. But compared to similar companies, the stock is a bit high. Given its most recent performance, I would now call it a soft ‘buy’, with the caveat that investors can likely get more bang for their buck from other prospects in the market. ‘space.
Great stability during these periods
In January 2021, I wrote my first article detailing Amcor’s investment value. I was particularly impressed with the quality of the company and the M&A activity it had engaged in over the previous years. With the prospect of synergies resulting from its acquisitions, and only organic growth on its own, I found myself optimistic about the future of the company. But ultimately, the pricing of the business and the uncertainty about expected synergies led me to rate the business as “on hold”, reflecting my belief at the time that it would likely work in the direction of what the broader market would do for the foreseeable future. So far, the company has held up well in today’s market, with a loss to shareholders of 1.7%. This compares to the 4.8% decline recorded by the S&P 500 over the same period.
A lot has happened since I last wrote about Amcor. We’ve seen nine quarters of reported data, taking the company not only through fiscal 2021 in its entirety, but also through its fiscal year 2022. The results so far are definitely promising. For example, in fiscal year 2021, sales were $12.86 billion. That’s a 3.1% increase from the $12.47 billion it generated in fiscal 2020. But the real growth for the company came in 2022, with revenue of $14.54 billion. billion, translating to a 13.1% year-over-year increase. The company benefited that year from a 0.4% increase in volumes and a 3.4% increase due to prices and product mix. What’s really fascinating is that the increase in revenue came even as the business was negatively impacted by other factors. For example, asset disposals and discontinuations affected the business by $87 million, while foreign currencies negatively impacted sales by $249 million. However, much of the company’s increase in sales came from $1.53 billion in additional pass-through of raw material costs to its customers.
Profitability of the business, meanwhile, was a bit more complicated. For example, from 2020 to 2021, net income grew nicely from $612.2 million to $939 million. But in fiscal 2022, profits dipped to $805 million. Foreign currency translation, higher costs associated with the plants it operates, an increase in selling, general and administrative and other expenses, as well as lower gross profit margins, have all hurt the business. from a profitability point of view. Even if it was, other metrics of the company’s profitability proved strong. Cash flow from operations increased from $1.38 billion in 2020 to $1.46 billion in 2021. In fiscal year 2022, the metric increased further, reaching $1.53 billion. The performance disparity looks even bigger if we correct for changes in working capital. In this case, the measure would have increased from $1.25 billion in 2020 to $1.51 billion in 2021. In fiscal year 2022, it increased again, reaching $1.73 billion in total. A similar trend can be seen by looking at EBITDA, with the metric rising from $1.73 billion in 2020 to $2.03 billion in 2021. In fiscal 2022, the metric continued to rise, reaching $2.12 billion.
For fiscal 2023, management expects growth to continue, with earnings per share expected to increase 3% to 8%. The company also intends to repurchase about $400 million of stock (in addition to the $600 million in purchases made in fiscal 2022) during the year. Assuming the company repurchases the shares at the average price the shares are currently trading at, $10.73 each, that should result in net profit of $825.3 million. That’s slightly higher than the $805 million the company generated in fiscal 2022. As we have no guidance on other measures of profitability, I’ve decided to price the company based on 2022 data instead. Doing so, we end up with a price/earnings multiple of 19.8, a price/adjusted operating cash flow multiple of 9.2 and an EV/EBITDA multiple of 10.2.
These numbers compare to the 17, 10.6, and 10.7, respectively, that we get using FY 2021 data. As part of my analysis, I also decided to compare Amcor’s prices for 2022 to 12-month multiples of five similar companies. On a price/earnings basis, these companies range from a low of 8.8 to a high of 21.2. And using the EV to EBITDA approach, the range was between 5.1 and 10.7. In both cases, four of the five companies are cheaper than our prospect. Using the price to operating cash flow approach, the range was between 3.8 and 14.7, with two of the five companies being cheaper than our prospect and the other being on par with him.
|Company||Prizes / Earnings||Price / Operating Cash||EV / EBITDA|
|Packaging Corporation of America (PKG)||10.4||8.0||6.3|
|WestRock Co. (WRK)||8.8||3.8||5.1|
|Sonoco Products (SON)||13.3||14.7||9.9|
|Sealed Air Corp. (SEE)||12.1||9.2||8.8|
|Graphic Packaging Holding Co. (GPK)||21.2||10.3||10.7|
The data we have today suggests to me that Amcor continues to perform well. Although net income can be a little volatile, other measures of profitability are promising. In absolute value, the company’s shares are attractive at the moment. But it’s also true that there are cheaper players out there that probably offer more upside in this space than Amcor can deliver. Due to these factors, I believe the company still offers investors enough potential to warrant a moderate buy rating at this time.