2 Material Sector Stocks – AMC, BLD

AMCOR LIMITED

Fading Short-term Challenges to Support Amcor: The management of Amcor Limited (ASX: AMC) reflected favourable views at the time about the short-term challenges as they have stated that these challenges are now reducing. The volumes in regard to North American beverage segment saw a marginal favourable momentum as well as the negative impacts to the earnings in some of the regions are now also being removed. Also, favourable momentum was witnessed in the organic growth in regard to the emerging markets or EMs in the H2.

AMC’s full year results (Source: Company Reports)

The company generated the sales revenues amounting to US$9.3 billion in FY 2018 ended in June 2018. The management of the company reflected favourable views in regard to the cash flow as well as balance sheet. The free cash flow of the company stood at US$194 million at the end of FY 2018.

Organic Growth, Acquisitions to Help AMC’s Flexibles Segment: In the constant currency terms, the management of Amcor Limited stated that PBIT of the Flexibles segment might witness favourable momentum moving forward. The factors which would be supporting the robust momentum in the PBIT are the marginal organic growth, acquisitions done as well as benefits with respect to the initiatives which the company had announced earlier.

Talking about the free cash flow, the company’s management stated that they are expected to generate free cash flow or FCF in the range of US$200 million-US$300 million in FY 2019.

Stock Analysis from Technical Perspective: Two technical indicators have been applied on the daily chart of AMC and default values have been used. As per the observation, the 14-day RSI (Relative Strength Index) is trending towards the oversold region and once it reaches there, a rebound is expected which might lead to bullish momentum. However, as per MACD (Moving Average Convergence Divergence), the MACD line has crossed the signal line and is moving downward.

The benefits from the acquisitions as well as positive momentum in the FCF are primary drivers which might support the company moving forward. As a result, we maintain our “Buy” rating on the stock at the current market price of A$13.300 per share.
 

Boral Limited

Growing infrastructure Supported Boral Australia’s Performance: Boral Australia segment of Boral Limited (ASX: BLD) witnessed robust momentum in their results in FY 2018 on the back of favourable momentum in the non-residential activity, infrastructure as well as property. The segment’s EBITDA stood at $634 million which represents the growth of 15% on the YoY basis in FY 2018 while its EBIT amounted to $433 million representing the growth of 24% YoY. Both the metrics i.e. EBITDA and EBIT have managed to outpace the guidance which was given in the month of April.

Boral Australia’s EBITDA (Source: Company Reports)

As per the management of the company, the impact of higher costs in the Boral Australia was offset by the price as well as improvement initiatives. However, the EBITDA in the USG Boral got negatively impacted by the extra-ordinary expenses along with the operational issues which occurred in the late Q4. Other factors which impacted this segment’s EBITDA were pricing pressures as well as increased input costs.   

Innovation, Margin Growth to Support Boral Australia: Moving forward, Boral Australia would primarily be supported by the increased focus towards innovation capabilities. Additionally, growth in the margins via commercial, customer as well as operational excellence might also be the primary contributor to the segment’s growth. However, USG Boral segment would be mainly supported by the increased adoption in regard to the Sheetrock products.

Analysis of BLD From Technical Standpoint: Two technical indicators have been used on the daily chart of Boral Limited and default values have been considered. As per the observation, the 14-day RSI (Relative Strength Index) has started recovering from the oversold region which means that the bullish momentum would be witnessed moving forward. Additionally, the stock price has crossed the EMA (Exponential Moving Average) and is expected to move upwards thus, creating bullish momentum. As a result, we maintain our “Buy” rating on the stock at the current market price of A$5.280 per share (up 3.529% on 3 December 2018).
 

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