In today’s daily we have covered stock research on Pact Group (Expensive).









 
The U.S markets were shut due to the Martin Luther King Day holiday. European stocks advanced for a third day, extending their highest level since 2008, amid investor expectations the European Central Bank will announce a plan for quantitative easing this week. Schindler Holdings AG added 3 percent after raising its profit estimate for 2014 to about 900 million francs ($1.04 billion) from as much as 865 million francs previously.

FTSE Eurofirst 300 equity index rose 0.2 per cent to a seven-year closing high of 1409.92, although that was well down from the day’s high of 1,418.11. The Xetra Dax in Frankfurt climbed 0.7 per cent to a record peak of 10,242. Oil prices resumed their downward trend, with Brent crude falling $1.38, or 2.8 per cent, to $48.79 a barrel — but staying well clear of last week’s five-year low of $45.19. Copper fell 0.8 per cent in London to $5,672 a tonne after hitting $5,353 last week, the lowest since July 2009.



FTSE 100 Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 9.90points or 0.19%on Monday and closed at 5309.14 points. Macquarie Group was up 5.35 per cent to $58.25 after a profit upgrade, with the bank expecting its full-year profit to surge by between 10 and 20 per cent due to improved trading conditions and the lower Australian dollar. Shares in Oil Search lifted 4.9 per cent to $7.49 after expansion of the giant PNG LNG project in Papua New Guinea took a step closer to reality.
Ten Networkstayed put at 20.5¢ amid news the troubled broadcaster and adviser, Citi, will resume negotiations with bidders this week. Discovery Communications and Foxtel are in pole position with a joint offer of 23¢ a share. SPI futures closed down 5 points to 5260 in European trading. The Australian dollar began local trading at US82.05¢, little changed from Monday’s local close of US82.18¢.

TEN Daily Chart  (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
 
Get up to 2 Years of free subscription by inviting your friends to KALKINE!
For every friend of yours who joins KALKINE, we'll give you 3 months of free subscription (up to a limit of 24 months free subscription). If you recommend 3 friends and they join within a month of you referring them, you get 1 year free subscription to KALKINE reports added to your account (up to a limit of 24 months free subscription). Simply reply to this email with their name, e-mail and phone number.
 



 
Stock of the Day - Pact Group Holdings (Expensive)

Pact Group Holdings (PGH), the largest supplier of rigid plastics packaging in Australia and New Zealand with an estimated 40% market share, reported to exceed its prospectus forecasts for the year ended 30 June 2014. The Company witnessed a FY13 pro-forma net debt of A$603m which indicated gearing of 74% and net debt/EBITDA of 3.1x. As at June 2014, net debt declined to A$565m (net debt/EBITDA of 2.8x).


Financial Highlights (Source – Company Reports)

Over the past one year, the Company could substantially work around issues related to gearing levels, related party risks and acquisition risk. This has helped PGH to become a ‘clean’ packaging company representing good value. The leading margins have been indicative of dominant market position and success in Australian and New Zealand markets. The focus has been improving efficiencies while reducing raw-material costs from centralized procurement in Singapore. The Company is also investing in technologies to further improve efficiency and is engaged in optimising the manufacturing footprint and locating manufacturing plants strategically close to its customers. The Company has undertaken various initiatives under development for the food & beverage, bulk materials and personal care segments. The commercial launch of its “Perfect Paint Pail” product with customer trials is one such initiative. At the AGM, PGH stated about the launch of its light weight milk bottle through its Infini licence with its alliance partners in the UK. Another development entails investing in a 5,500-tonne injection moulding facility in New Zealand.


Innovation led Market Leadership and Growth (Source – Company Reports)

The key barriers for the Company have been the related party and acquisition risks. The potential Dynapack transaction could have been an important landmark for the business. However, the Company at its AGM revealed that it had ceased discussion with Dynapack and restated its criteria for assessing acquisitions (20% ROI within three years). Going a little backwards, we noted that PGH during its full-year results announcement in August 2014, highlighted about a preliminary review of the Dynapack acquisition which raised concerns about the financial metrics of the proposed transaction in view of the Company’s criteria for assessing acquisition. The acquisition had an associated risk but the transaction may have increased Asia’s revenue contribution from ~6% to ~22%. However, PGH’s acquisition pipeline still looks strong and steps such as investment in Indonesia is a good indicative of organic growth opportunities.


Segment Overview (Source – Company Reports)

In last three years, PGH’s average EBIT margin was reported to be 12.6% as compared to peers having an average EBIT margin of about 8.5%. The recent dip in AUD plastic resin commodity price could be a tailwind in the December 2015 half. On the other hand, we do note that the Company recently lost a key contract which related to packaging for Lion dairy and juice drinks, one of PGH’s largest customers. Players like Visy which are expanding in beverage plastics appear to be a threat. Specially, milk bottles have been a key area of competition.



Resin Price over 5 Years (Source – Company Reports)

However, with more and more of competition in Australia, resin and other cost increases may be difficult to pass. Primarily, resin could cost the Company A$70/t more in 2H15 during weakness in the Australian dollars. On the other hand, there may be an opportunity if USD resin prices also fall. At the AGM, the Company stated that general trading conditions have also remained subdued with 1Q15 trading conditions. Exposure to exchange rate movements such as movements in the NZD, USD, etc. in view of adverse fluctuations would also have an impact on PGH.


Global Alliance Partner (Source – Company Reports)

PGH expects higher revenue and earnings in FY15, which however, is dependent on the economic conditions. Further, Sulo acquisition ($48m annual turnover) and new plant in Jakarta scheduled to commence production in 2015 indicate some growth prospects for the Company.



PGH Daily Chart (Source - Thomson Reuters)

Given the entire scenario, we believe that the stock is expensive at the current price of $4.19.


 
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.
Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).
The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.
Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.
The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide.