In today’s daily we have covered stock research on AMCOR (EXPENSIVE). 











 
The S&P 500 was down by 12.04points or 0.62 %on Wednesday to 1929.24 points. U.S. stocks fell in afternoon trading on Wednesday, with major indexes erasing earlier gains as a shooting at the Canadian parliament unnerved investors and Boeing and Biogen sold off following results. In spite of the day’s decline the S&P has still rallied 5.8% since hitting a six month low of 1821 at the height of the turbulence that swept through global markets last week and is down a comparatively modest 4.2% from September’s record closing high.

Across the Atlantic FTSE Eurofirst 300 rose 0.7% in spite of some concerns about the European Central Bank’s  forthcoming Asset Quality Review while the Nikkei 225  in Tokyo rebounded 2.6% after Tuesday 3% Slide. Speculation that the US interest rates could stay low for longer has been fuelled by dovish comments from the Fed officials most notably St Louis Fed president James Bullard’s suggestion that the US central should consider postponing the end of its quantitative easing programme.



BOEING Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 60.9points or 1.14% on Wednesday and closed at 5385.90 points. Among the miners on Wednesday, Rio Tinto rose 2.1 per cent to $61.21, while BHP Billiton gained 1.5 per cent to $34.27. Cooper basin oil and gas producer Senex Energy reported September-quarter production figures roughly ­in line with expectations, including a 27 per cent production increase on the prior year’s corresponding period, but a 12 per cent drop on the June quarter.

Food and liquor retailers rose, with Woolworths up 0.2 per cent to $34.80, and Wesfarmers, owner of Coles, rising 1.0 per cent to $41.85. The Australian dollar is trading at US87.73¢, compared with US87.88¢ at Wednesday’s local close. SPI futures are down 36 points. Iron ore was up 0.3 per cent at $US81.83 a tonne. The following stocks will trade ex-dividend today: PPK Group. Northern Star Resources (NST) was the best performing stock.
 
 

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


 
Stock of the Day - Amcor Limited (EXPENSIVE)

Amcor Limited (AMC) reported a successful 2013/14 financial year wherein the Company witnessed strong earnings growth and higher returns. The dividends paid to shareholders were increased by 26.5% to 43.0 cents per share. The EPS was up by 24.7% and constant currency EPS was up by 9.2%. Operating cash flow was $890.6m, which rose by 39.8%.


Consolidated Income Statement (Source – Company Reports)

The sales margin also improved from 10.3% to 10.8%. Returns, measured as profit before interest and tax (PBIT) over average funds employed, went up to 19.4%. This resulted from continued solid growth in emerging markets, fruitful acquisitions and innovation-driven enhanced product mix. AMC has set FY15 interest expense as US$180-$190m and has confirmed for no major refinancing requirements for FY15.


Sales Breakdown (Source – Company Reports)

AMC has two business segments - the Flexibles Packaging business and the Rigid Plastics business. The Flexible Packaging business witnessed earnings of €606.2 million, which rose by 7.1% and sales margin rising from 11.6% to 12.1%. The Rigid Plastics business attained earnings of US$298.2 million, which is a 4% increase.

The Company reports to have a healthy balance sheet and a good debt profile. AMC also announced a number of acquisitions in the Flexible Packaging business during the year. For example, Jiangsu Shenda Group in China, Detmold Flexibles in Australia, and Bella Prima Packaging in Indonesia. This appeared to improve its performance. Further, the successful demerger of the Australasia and Packaging Distribution (AAPD) business looks appealing. The AAPD business has been renamed Orora Limited and listed on the Australian Securities Exchange. We do note that the demerger of the Australasia and Packaging Distribution has led to reduction of AMC’s total assets with an improvement in returns.


Sales by Region (Source – Company Reports)

A bird’s eye-view on the returns from organic route illustrates a 7.7% profit in emerging markets and 0.3% profit in developed markets. Particularly, acquisition driven profit growth was 3.3% in consideration of acquisitions announced in Flexible Packaging business in China, Australia, Indonesia and India.


Sales by Business Group (Source – Company Reports)

Detail analysis of the business segments reveals that AMC’s Flexible Packaging business is a leading supplier of flexible packaging and folding carton packaging. There are three operating divisions under this segment, namely, Flexibles Europe & Americas, Flexibles Asia Pacific and Global Tobacco Packaging. The Company believes that global presence, emerging market growth, product innovation (such as next generation coffee capsules for US market) and strategic marketing are the key to success.

The operating margin for this segment increased from 11.6% to 12.1%. There were cost improvements and operating efficiencies in Asia Pacific with good growth in China. The Company reported lower earnings in Thailand and NZ, and lower volumes in Europe for the segment.

As said earlier, the acquisitions appear to be fruitful for AMC. For instance, the Company acquired Detmold Flexibles business in April 2014, which was A$50 million acquisition, in order to expand various other opportunities in Australia. The Company may be able to realize the benefits over the next two years.
 
Manufacturing inefficiencies and high New Zealand dollar affected performance in said region. Due to lower volumes in Europe, AMC will undertake restructuring activities during the first half of FY15.

AMC’s outlook for 2014/15 entails higher earnings, further growth in emerging markets, reaping fruits from acquisitions, operational improvement, and restructuring costs in first half, although it is expected that conditions will remain submissive in developed markets.

Looking at the other business segment, Rigid Plastics is noted to be one of the world’s largest producers of polyethylene terephthalate (PET) packaging and containers using other plastic resins. For this segment, a lot is being contributed by manufacturing excellence and product diversification expansion along with innovation and emerging market growth.

The return on funds employed increased to 18.3% for this segment. For the North America beverage section, volumes were up by 1% and earnings were marginally lower. For diversified products, the Company reported strong results in view of better product mix and lower operating costs. In Latin America, South & Central America witnessed good results with Argentina having a tough fourth quarter. This business had a robust year with flat sales indicative of healthy volume growth in higher value-add segments which got balanced by the plant shut-down in Puerto Rico and exiting lower margin volumes.

For the above segment, Company’s outlook for 2014/15 entails higher earnings, sustained growth in Diversified Products, unrelenting growth in Latin America, and better earnings in North America Beverage subject to weather conditions.

The Company also announced the revolutionary LiquiForm™ technology which works on the consumable liquid instead of compressed air with simplification of the process of forming and filling the container in one step. This product is under a joint venture with Sidel and is expected to undergo commercialization phase in coming two to three years.

 
Image (Source – Company Reports)

AMC has additionally launched products such as Amcor N-Gage films, which is a range of innovative lidding films.

The Company has a global presence, particularly in emerging markets, with 72 plants and more than 10,000 co-workers in 28 countries across Asia, including China and India, South and Central America, Eastern Europe and Russia. The acquisition strategy may be one key factor to have a sustainable footprint as the same has paid well with respect to already acquired assets.


Amcor Shareholder Value Creation Model (Source – Company Reports)

AMC has also won many awards and accolades in FY14. Few examples, include awards in the Alufoil Trophy 2014 at the European Aluminium Foil Association (EAFA).


Amcor Daily Chart (Source - Thomson Reuters)

Although the Company’s solid result coupled with dividend increase, tremendous growth potential in emerging markets, pipeline of opportunities through acquisitions etc. provokes us to taste this prospective carrot, there are also updates with regards to closing of many of its plants/ operations in few regions and termination of few agreements such as the asset purchase agreement with Constar International Holdings, LLC. We thus believe that the stock is still EXPENSIVE at the current price of $11.28 and would review the same at a later date.


 
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