Stock of the Day – Orora  (ORA)

Orora consists of two divisions – Australasia and packaging distribution.  The Australasia business undertakes fibre and beverage packaging within Australia and New Zealand. The packaging distribution business is located within North america, and is focused on distribution of packaging  materials. The business has 36 manufacturing plants and 79 distribution sites across seven countries and employs approximately 5700 people.


Orora Australasia (Source – Company Reports)

Recent softness in Australian soft drink volumes highlighted by the earnings downgrade by Coca – Cola Amatil does not appear to be affecting Orora’s core plastic containers business. We note Coca- cola is a customer of Orora, accounting for around 10% of sales. Volumes have been reasonable soft for the past 12 months. It appears investors are attracted to its relatively defensive earnings profile and strong cash flow generation , which we believe is supporting the current share price.


Orora North America (Source – Company Reports)

The core fibre packaging business which accounts for 65% of EBIT faces significant competition from Visy and imports. This is unlikely to change in the medium to long term and means the group will deliver returns in line with its current cost of capital. Earnings growth in the medium term will depend on the speed of the recovery in the U.S market which drives the packaging distribution division’s earnings..


Orora Daily Chart (Source – Thomson Reuters)

Orora continues to generate strong growth demonstrated by revenue up 8% to AUD 1.6 billion and EBIT up 24% to AUD 97.3 million. The restructuring initiatives under way and the cost savings flowing from the ramp up of the B9 recycling plant are also a key driver of earnings growth in the medium term. The company is on track to achieve the targeted AUD 30 million to AUD 40 million in costs savings in 2014. The botany B9 recycling plant is running to schedule. We believe the stock is expensive at bits current price and would review the stock at  a later date.

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