Amcor PLC
AMC Details
1QFY22 Key Highlights: Amcor PLC (ASX: AMC) is a packaging company, working through the segments: Flexibles and Rigid Plastics. It includes packaging of beverages, food, home care, healthcare, and personal and tobacco and industrial applications.
- Net Income: The company’s GAAP net income rose by ~2% and EPS by ~4% (Pcp basis) and reported as ~US$202 million and ~US 13.1 cents per share, respectively.
- Dividend: Due to the shortages of raw material supply, AMC worked on a flat margin for its Flexibles segment but got compensated by using Rigid Plastics’ segment’s dynamic environment and managed to give a cash dividend of US 12.00 cents per share (unfranked AU$ 16.01 per share) for the 1QFY22 versus US 11.75 cents per share in last quarter.
- Net Debt: The net debt was reported as ~US$5,969 million as of 30th September 2021.
- Free Cash Outflow (FCF): Due to the timing impact of higher costs of raw material, the company’s free cash flow came out to be ~US$242 million versus ~US$190 million last year.
FY21 Highlights:
- Net Revenue: Keeping the currency constant, its net sales (adjusted non-GAAP) increased by ~2% Y-o-Y and were reported as ~US$12,861 million in FY21 versus ~US$12,468 million in FY20.
- Net Income: The company recorded a hike of ~13% Y-o-Y (currency constant) as ~US$1,158 million in FY21.
Cash Balance Highlight (Source: Analysis by Kalkine Group)
Key Risks: Looking at the type of business and OMICRON variant’s lockdown possibilities, AMC is vulnerable to supply chain disruption risks, which might affect its raw material prices and thereby affect its sales and profit margins. The company is also vulnerable to foreign currency fluctuations risks as it operates its business globally.
Outlook: As with the alignment of guidance for FY22 released in August 2021, it anticipates total cash of ~US$400 million for the share repurchases with ~7%-11% growth in its EPS (adjusted). AMC expects its FCF to be between ~US$1.1–1.2 billion for FY22.
Valuation Methodology: Price/Earnings Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The company is trading above its 52-week low-high average of A$14.12 - A$17.9, respectively. The stock has a support and resistance level of $16 and $17.45, respectively. The stock of AMC has given a positive return of ~9.64% in the past six months. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation and arrived at a target price with a correction of high single-digit (in % terms). The company can trade at some premium to its peers’ average Price/Earnings multiple, considering the increase in revenue, increase in gross and net margin, etc. For the purpose of valuation, peers such as Orora Ltd (ASX: ORA), Pact Group Holdings Ltd (ASX: PGH), Pro-Pac Packaging Ltd (ASX: PPG), and others have been considered. Considering the expected downside in valuation, the anticipated supply chain disruptions due to COVID-19 Omicron, current trading levels, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of AU$17.00, 11:22 AM (GMT+10), Sydney, Eastern Australia, as on 10th January 2022.
AMC Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.
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