WEEKLY STOCK COMMENT: AMCOR
Roy Davidson, 23 November 2017
AMC is one of the world’s largest packaging companies. The company has a global footprint and a broad range of rigid and flexible packaging products servicing the food, beverage, healthcare, home and personal care, and tobacco packaging industries.
AMC has grown from its origins in Australia into a true global packaging player with more than 35,000 employees in over 40 countries. AMC has been able to achieve this through a combination of organic growth and successful acquisitions. One such acquisition was the transformational purchase of Alcan Packaging from Rio Tinto in 2010. The Alcan Packaging acquisition added approximately US$4.1bn in sales and 14,000 employees across 80 plants in 28 countries. It also increased AMC’s revenue by 50% and earnings by 40%. The company has continued to make strategic acquisitions since then and continues to assess opportunities.
While AMC’s pursuit of acquisitions and operations in emerging markets (30% of sales) provide earnings growth potential, the end markets the company serves are very defensive, with demand less linked to economic conditions. Around two thirds of overall sales are from the food and beverage sectors, with healthcare, tobacco and home and personal care making-up the remaining third.
Recent results have highlighted the strength and defensiveness of the AMC business, with recent results being solid despite a mixed economic backdrop. AMC has delivered decent earnings growth driven by a combination of organic volume growth, operational efficiencies, and acquisitions. The flexibles segment (two thirds of earnings) has performed well, with the company focussing on streamlining the European business, while the Rigids business (one third of earnings) has benefitted from strong North American beverage volumes.
AMC’s sales tend to be more defensive in nature (food, beverage, pharmaceutical, tobacco) which insulates AMC more than most. AMC also has a history of innovating and we expect this to be a source of continued competitive advantage. The balance sheet remains sound and the company has competitive advantages based on its market leading position and global operations. Acquisitions, which have proven successful in the past, remain a key part of the AMC business model, with North American flexibles an area of focus as the business is underweight in that region. The weaker Australian dollar is a benefit for AMC’s share price and the company’s share buyback programme will provide ongoing support.
Risks to AMC include; 1) increased competition, 2) economic downturn, and 3) technological change.