Pact Group Holdings Ltd

PGH Details

This report is an updated version of the report published on 7^th April 2022 at 3:55 PM GMT

Change in Directors’ Holdings: Pact Group Holdings Ltd (ASX: PGH) is a manufacturer of rigid plastics packaging, metals packaging and related products. Recently, Margaret (Lyndsey) Cattermole has made a change in holdings in the company by acquiring 3,546 fully paid ordinary shares at a consideration of $8,432.8.

Insights of 1HFY22: The company’s balance sheet at the end of the half was strong as it maintained gearing within targeted levels at 2.7x with net debt at $601 million and a solid operating cashflow conversion rate of 73%.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: The company’s business is exposed to risks arising from rising raw material and supply chain costs. In addition, the business could be affected by the rising market share of its peers in the industry.

Outlook: The company intends to make investments of ~$80 million over the next three years to improve its manufacturing capability to meet the growing demand for sustainable products. Subject to global and domestic conditions, the company anticipates an underlying EBIT of between $155 million and $165 million in FY22.

Valuation Methodology: P/E 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 stock of PGH is currently trading near its 52-week low level of $2.160, offering a decent opportunity for accumulation. The stock has been corrected by ~10.08% in the past three months. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 Led uncertainties and negative net margin, etc.  For the purpose of valuation, peers such as Amcor PLC (ASX: AMC), Orora Ltd (ASX: ORA), and Pro-Pac Packaging Ltd (ASX: PPG) have been considered. Considering the expected upside in valuation, decent gearing level, optimistic outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.170, as on 07 April 2022 at ~10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

PGH 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 on 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 subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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