Smaller packager delivers good news
AAPD will have a revenue base of $2.8 billion and operating earnings of about $280 million. It has certainly been whipped into shape during the past few years, with about $1 billion of investment, while 65 plants have been scaled down to 26.
Outlook AAPD is past the peak of its capital expenditure cycle and should be able to generate solid free cash; plus, financial benefits of the recent restructures are projected in the next couple of years. Indeed, the longer-term prospects for AAPD are not as bright as the new-look Amcor's flexible and rigid plastics packaging assets, which have a combined $10 billion revenue base and $1.5 billion operating earnings base, boasting global market leadership. This is the main reason we are attracted to its shares.
Price Amcor's stock price is up 20 per cent over the past six months and over 40 per cent in the past year.
Worth Buying? We fully support Amcor's decision to demerge AAPD into a separately listed company, though we reserve our final judgment on the smaller entity pending the release of more financial information and its capital structure.
However, the stock is trading at lofty multiples (almost 20 times consensus fiscal 2013 earnings estimates, 16 times the following year). Consequently, we believe it is prudent for those without exposure to wait for a pull-back in price before buying into Amcor.
Brian Han is senior research analyst at Fat Prophets sharemarket research. To receive a recent Fat Prophets Report, phone 1300 881 177 or email info@fatprophets.com.au.
Frequently Asked Questions about this Article…
Amcor announced on August 1 that it intends to spin off its Australasia and Packaging Distribution (AAPD) businesses into a separately listed company as part of the market's recent wave of demergers.
The article states AAPD will have a revenue base of about $2.8 billion and operating earnings of around $280 million.
Amcor has invested about $1 billion in AAPD and significantly consolidated operations, reducing the number of plants from 65 down to 26.
According to the article, AAPD is past the peak of its capital expenditure cycle, should be able to generate solid free cash flow, and is expected to realise financial benefits from recent restructures over the next couple of years.
The piece says AAPD's longer-term prospects are not as bright as Amcor's flexible and rigid plastics packaging assets, which together have about $10 billion in revenue, $1.5 billion in operating earnings and global market leadership—this is the main reason the analyst is attracted to Amcor's shares.
Amcor's stock was up about 20% over the past six months and over 40% in the past year, but the shares were trading at relatively high multiples—almost 20 times consensus fiscal 2013 earnings estimates and about 16 times the following year—prompting caution.
The analyst supports the decision to demerge AAPD but reserves final judgment on the smaller entity until more financial details and capital structure are released; given current lofty valuation multiples, the recommendation for those without exposure is to wait for a price pull-back before buying Amcor.
The commentary is from Brian Han, senior research analyst at Fat Prophets. To receive a recent Fat Prophets report you can phone 1300 881 177 or email info@fatprophets.com.au as noted in the article.
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