Packaging │ Australia
May 29, 2015
Amcor
AMC AU / AMC.AX
Market Cap
Avg Daily Turnover
Free Float
Current
A$14.47
Target
A$15.52
US$13,188m
US$44.74m
100.0%
Prev. Target
A$17,269m
A$57.36m
1,199 m shares
Up/Downside
NA
7.2%
Conviction|
—————————————————————————————————————————
|
Looking outside Australia
AMC offers investors leverage to an improving US and European
economy as well as higher growth emerging markets through a high
quality defensive business. Despite the solid share price run over the
past 12 months, we think the stock can continue to track higher, driven
by an expected fall in the AUD/USD and supported by the buyback.
Alexander LU
T (61) 2 7903 2701
E alex.lu@morgans.com.au
Belinda MOORE
T (61) 7 3334 4532
E belinda.moore@morgans.com.au
High quality international exposure
Share price info
Share price perf. (%)
1M
3M
12M
Relative
8.1
9.5
33.1
Absolute
4.1
5.9
36.5
Major shareholders
% held
The Capital Group
Companies
10.6
Blackrock Investment Mgmt
5.1
Vanguard Group
2.6
We initiate coverage on AMC with an Add rating and A$15.52 target price (based
on 19x FY16F PE), implying a TSR of 11% over the next 12 months. We view AMC
as a solid defensive growth company with a strong management team. With 95% of
revenue generated outside Australia, we think AMC is a key candidate for investors
seeking international exposure to a high quality name.
Stable defensive growth
AMC holds dominant global positions in many of its chosen end markets with an
international footprint spanning 180 manufacturing sites across 43 countries. AMC
generates nearly all of its revenue from the highly defensive and stable end markets
of food & beverage, healthcare, home & personal care and tobacco packaging
industries, making it less vulnerable to fluctuations in economic conditions. AMC
has a strong presence in higher growth emerging markets, which we expect will
benefit from higher demand for packaged products as wealth in these regions
increases.
Tailwind from falling AUD/USD
AMC recently moved to USD reporting of its financial statements. A falling AUD
provides a translation benefit when deriving our AUD-based valuation. With the
US Federal Reserve announcing its intention to potentially raise interest rates this
year, we think there will be further pressure on the AUD going forward, providing a
near-term tailwind to the share price (-1c in AUD/USD = +0.5% to valuation).
Add rating, A$15.52 TP
We initiate coverage on AMC with an Add rating and A$15.52 target price. Our
target price represents a 5% premium to the FY16F Industrials (ex-Fin) index PE
multiple and a 12% discount to the current Brambles (BXB) multiple. We see BXB
as a comparable company given its similar global presence and FMCG customer
base, and think the current 18% discount is unwarranted given AMC’s superior
financial returns. Downside risks include a rise in the AUD/USD, higher raw
material costs and a downturn in the European and North American economies.
Price Close
Relative to S&P/ASX 200 (RHS)
15.50
135.0
14.50
127.5
13.50
120.0
12.50
112.5
11.50
105.0
10.50
97.5
9.50
20
90.0
15
Vol m
10
5
May-14
Aug-14
Dec-14
Mar-15
Source: Bloomberg
52-week share price range
14.47
14.72
10.02
15.52
Current
Target
Financial Summary
Revenue (US$m)
Operating EBITDA (US$m)
Net Profit (US$m)
Normalised EPS (US$)
Normalised EPS Growth
FD Normalised P/E (x)
DPS (US$)
Dividend Yield
EV/EBITDA (x)
P/FCFE (x)
Net Gearing
P/BV (x)
ROE
% Change In Normalised EPS Estimates
Normalised EPS/consensus EPS (x)
Jun-13A
12,763
1,626
616.2
0.59
9.10%
18.85
0.41
3.72%
10.23
22.78
107%
3.99
21.1%
Jun-14A
9,965
1,439
677.8
0.56
(4.20%)
19.67
0.39
3.55%
11.10
22.92
141%
6.57
25.2%
Jun-15F
9,674
1,407
679.1
0.57
0.82%
19.51
0.40
3.61%
11.14
24.29
141%
7.11
35.0%
Jun-16F
9,810
1,449
703.4
0.60
5.57%
18.49
0.42
3.79%
10.69
17.16
150%
7.21
38.7%
Jun-17F
10,400
1,556
754.0
0.65
8.57%
17.03
0.45
4.11%
9.70
25.54
123%
6.40
39.8%
1.03
1.03
1.06
SOURCE: MORGANS, COMPANY REPORTS
IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS
CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP
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Amcor
May 29, 2015
Quality international play
Following the demerger of Orora (ORA) in December 2013, AMC’s focused
portfolio consists of two specialty packaging business groups – Flexibles and
Rigid Plastics. AMC is the global market leader in food flexibles, healthcare
flexibles, tobacco packaging and rigid plastic containers. The company derives
over 95% of its annual revenue from the defensive food, beverage, healthcare,
home & personal care and tobacco packaging industries. AMC also derives over
95% of its revenue from outside Australia, making it a key candidate for
investors seeking international exposure to a high quality name.
1. INVESTMENT CASE SUMMARY
1.1 Initiate with an Add rating, A$15.52 TP
We initiate coverage of AMC with an Add rating and A$15.52 target price. We
are attracted to AMC’s defensive growth profile, international exposure, high
returns, experienced management team and strong cash flow generation giving
it further opportunities for capital management down the track. With a
significant amount of earnings generated outside Australia, we see upside risks
from a falling AUD/USD in addition to share price support from the current
US$500m buyback.
Our A$15.52 target price is based on an FY16F PE of 19x, broadly representing a
5% premium to the Industrials (ex-Financials) index PE multiple (18x). We
think this is reasonable given the quality of the business.
To put this in a global context, our target multiple is at a discount to AMC’s
average global FMCG customers FY16F PE multiple of 19.6x. In addition,
Brambles (BXB), which services similar end markets and has a global
geographical presence, currently trades on an FY16F PE multiple of 21.6x. So
while we don’t think AMC should trade in line with BXB’s multiple given its
slightly lower growth profile, we think a multiple somewhere in between the
Industrials (ex-Financials) index and where BXB is currently trading is
appropriate.
1.2 Five key investment highlights
1.
International exposure through a locally listed stock - AMC derives
over 95% of its revenue from countries outside Australia, one of the highest
listed on the ASX. This can have long-term benefits to those investors
seeking international diversification without having to bear the higher
transaction costs associated with trading stock overseas.
2. Leverage to falling AUD/USD – With AMC reporting earnings in USD,
a falling AUD provides a translation benefit when deriving our AUD-based
valuation. On our numbers, a 1c fall in the AUD/USD increases our
valuation by 0.5%.
3. Exposure to highly defensive end markets - AMC generates nearly all
of its revenue (95%) from the highly defensive and stable end markets of
food, beverage, healthcare, home & personal care and tobacco packaging
industries. These industries are less impacted by fluctuations in economic
conditions compared to others such as Resources and Consumer
Discretionary.
4. Strong financial returns and balance sheet – In FY14, AMC reported
a group EBITDA margin of 14.6% and EBIT margin of 10.8%. Returns were
strong with ROFE at 19.4% and ROE of 24.3%. The balance sheet remains
healthy with gearing (net debt/EBITDA) at 2.0x (versus 2.25-2.75x target
range) and interest cover at 7.5x (versus target >6x). AMC is a strong cash
generator with free cash flow after dividends in excess of A$300m in FY14.
We expect FCF (post-dividends) to remain around these levels going
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Amcor
May 29, 2015
forward, giving scope for AMC to explore future capital management
opportunities.
5.
Capital management opportunities – AMC’s strong free cash flow
generation allows capital management opportunities from time to time.
After allowing for capital expenditure and the payment of ordinary
dividends, AMC looks to use the excess cash to create value through
targeting acquisitions that will generate a 20% plus return on investment.
Absent acquisition opportunities, the company will look to pay excess funds
back to shareholders, typically in the form of a share buyback. This is
evidenced by the A$150m buyback announced in 2011 and the US$500m
buyback in early 2015. We don’t factor any capital management initiatives
into our forecasts. Given AMC’s history of returning cash back to
shareholders, we see a reasonable chance of further capital management
initiatives over the next five years. This could therefore provide additional
support for the share price over the longer term.
1.3 Other investment highlights

Leading global market positions - AMC is the global market leader in
food flexibles, healthcare flexibles, tobacco packaging and rigid plastic
containers. The company’s dominant position in these markets allows it to
serve the large multinational FMCG customers and puts it in a strong
position to win new contracts as they arise. AMC’s strong relationship with
the FMCG companies also allows it to be their partner of choice when
venturing into new market segments.

Defensive growth - The fundamental driver of the AMC business is
volume growth in the main developed markets of Western Europe and
North America where AMC generates the majority of its earnings. The
general growth rate is therefore linked to GDP growth in these markets.
With earnings in these regions generally stable and providing a solid base
from which to grow, acquisitions and expansion into higher growing
emerging markets provide the extra earnings boost with relatively low risk
to group earnings.

Disciplined approach to acquisitions - AMC seeks to only acquire
businesses that meet its return on investment hurdle of 20% within three
years. This disciplined approach has seen returns on average funds
employed (ROFE) increase from 10.5% in FY09 to 19.4% in FY14. In
contrast, over the same time period Brambles has seen ROIC fall from over
21% to 16% (with a target to return ROIC back to 20% by FY19) on the back
of a number of acquisitions. While AMC’s returns are likely to increase only
incrementally from here, we expect the company to remain disciplined in its
approach to acquisitions, thereby continuing to grow the business at a rate
well above its cost of capital.

Strong and proven management team - Despite the recent departure
of long serving CEO Ken Mackenzie, we think AMC still possesses a strong
and experienced management team. Former CFO, Ron Delia, was
announced as the successor to Ken Mackenzie and took over the top job in
April. We don’t think the change in leadership will affect the future direction
of the company given Ron Delia has been a key driver of AMC’s growth in
successfully expanding into emerging markets and the integration of a
number of acquisitions since becoming CFO in 2011.

Blue chip client base - AMC’s products are sold to some of the largest
multinational companies in the world. AMC has strong relationships with
many Fast Moving Consumer Goods (FMCG) companies that make
products people use every day. These customers include Danone, Nestle,
British American Tobacco, PepsiCo, Procter & Gamble, Unilever and
Johnson & Johnson.

High barriers to entry - AMC produces hundreds of products that serve
customers all over the world. Its manufacturing footprint in 43 countries
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Amcor
May 29, 2015
and economies of scale from producing large volumes gives it a competitive
advantage in our view, which will be hard for a new entrant to replicate.

Focus on product innovation – AMC invests heavily in R&D and
product innovation. This gives it a point of differentiation and allows the
company to remain competitive, maintain strong relationships and win new
customers. Packaging is a highly competitive industry and customers are
constantly demanding differentiated, higher value-added products with an
increasing focus on environmentally friendly packaging. Providing product
innovation solutions allows AMC to increase sales, earn better margins and
retain and attract new customers.
1.4 Catalysts for share price appreciation
1.
Flight to safety - As volatility in the equity market increases, there should
be higher demand from investors for defensive stocks.
2. Falling AUD/USD - AMC recently changed its financial reporting
currency from AUD to USD. A depreciating AUD/USD will be positive for
the translation of our USD-based valuation back to AUD. The chart below
shows AMC’s share price over the past two years against the AUD/USD. As
can be seen, there is quite a high negative correlation between movements
in the AUD/USD and movements in the AMC share price. We currently
forecast an FY16F AUD/USD exchange rate of 73c (versus spot 77c).
Figure 1: AMC share price versus AUD/USD
(A$)
16.00
1.10
15.00
1.05
14.00
1.00
13.00
0.95
12.00
0.90
11.00
0.85
10.00
0.80
9.00
0.75
8.00
0.70
7.00
0.65
6.00
Apr-13
0.60
Jul-13
Oct-13
Jan-14
Apr-14
AMC
Jul-14
Oct-14
Jan-15
Apr-15
AUD/USD (RHS)
SOURCES: MORGANS, BLOOMBERG
3. Capital management - AMC’s strong free cash flow generation gives rise
to capital management opportunities in the future. In the absence of
value-accretive acquisitions, AMC has stated its intention to return cash to
shareholders, which should see an uplift in the share price. We don’t factor
any capital management initiatives into our forecasts. Given AMC’s history
of returning cash to shareholders, we see a reasonable chance of further
capital management initiatives over the next five years.
4. PE re-rating - Increased exposure to higher growth emerging markets
should be a catalyst for a PE re-rating over time.
5.
Pick-up in European and North American economies Approximately 65% of AMC’s annual sales are generated in Western Europe
and North America. While AMC largely operates in defensive and stable end
market segments, a pick-up in economic growth in its main regions of
operation would be positive for earnings, which should see upgrades to
broker consensus forecasts.
4
Amcor
May 29, 2015
1.5 Amcor (AMC) versus Brambles (BXB) and global FMCG
customers
In our view, Brambles (BXB) is a close comparison company to AMC given it
also predominantly services the global FMCG companies and has a large
exposure to defensive end markets such as food and beverage. For example,
while AMC may provide the plastic wrapping for the chocolate bars produced by
Nestle, BXB may provide the pallets that deliver these boxed goods to the stores.
Both companies therefore provide different functions in the same supply chain.
BXB also has a large international presence with operations in over 60 countries.
AMC has locations in 43 countries. Both companies have a relatively small
presence in Australia and both report earnings in USD.
Figure 2: AMC revenue by region (FY14A)
Figure 3: BXB revenue by region (FY14A)
ANZ, 5%
Asia-Pac, 9%
Title:
Source:
52%
Please fill in the values above to have Americas,
them entered
in your rep
Western Europe,
34%
Emerging
Markets, 30%
EMEA, 39%
North America,
31%
SOURCES: MORGANS, COMPANY REPORTS
SOURCES: MORGANS, COMPANY REPORTS
With the similarities between AMC and BXB, we have analysed the financial
metrics and trading multiples of both companies with the results set out in the
following table (Figure 4).
BXB generates higher margins and has a slightly higher earnings growth outlook,
while AMC produces higher financial returns. AMC has higher gearing and both
offer a similar dividend yield. Looking at the trading multiples, AMC is trading
at a slight premium to BXB on an EV/EBITDA basis, but trades at a discount on
a PE and EV/EBIT basis.
5
Amcor
May 29, 2015
Figure 4: AMC versus BXB
Amcor
Financials
Reporting currency
Brambles
(AMC)
(BXB)
FY16F
FY16F
US$
US$
Revenue (m)
9,810
5,680
EBITDA (m)
1,476
1,615
EBIT (m)
1,124
1,041
703
639
EBITDA margin
15.1%
28.4%
EBIT margin
11.5%
18.3%
EBITDA growth
3.0%
4.5%
EBIT growth
4.1%
5.4%
ROIC (pre-tax)
21.9%
15.6%
ROE
36.5%
17.8%
ND/(ND+E)
59.9%
42.5%
ND/EBITDA (x)
1.9
1.7
Net interest cover (EBIT)
5.8
6.8
PE (x)
17.7
21.6
EV/EBITDA (x)
10.4
9.8
EV/EBIT (x)
13.9
15.2
Div yield
3.9%
3.8%
2-yr EPS CAGR
7.2%
9.3%
2-yr EBITDA CAGR
5.2%
7.6%
2-yr EBIT CAGR
6.0%
NPAT (m)
8.9%
SOURCES: MORGANS ESTIMATES
On our numbers, AMC is trading on an FY16F PE of 17.7x versus BXB at 21.6x.
We acknowledge that given BXB’s higher margins and slightly higher growth
profile, it may deserve to trade at a premium to AMC. However, we don’t think
the current 22% PE premium is warranted given AMC does generate higher
returns. Our target price of A$15.52 is based on an FY16F PE multiple of 19x,
which we don’t think is expensive given it still represents a 12% discount to
BXB’s current FY16F PE.
Similarly, in the context of the average FY16F PE multiples of AMC’s main
global FMCG customers (19.6x), with equally defensive business characteristics,
we don’t see our target PE valuation for AMC as expensive.
Figure 5: Global FMCG comps
EBIT
Mkt cap EV/EBITDA EV/EBIT
ND/EBITDA
interest
2-yr EPS 2-yr EBIT
(m)
(x)
(x)
PE (x) EPSg (%) ROE (%)
(x)
ND/(ND+E) Div yield cover (x) P/FCF P/B
CAGR
CAGR
Company name
(LC)
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016 2016
Danone SA
41,409
12.7
16.0
20.8
11.3
14.5
2.0
40%
2.5%
17.1
31.7
2.9
10.4%
7.6%
Nestle SA
237,507
13.8
17.0
21.0
3.9
15.4
0.7
15%
3.2%
23.4
21.8
3.2
5.8%
6.7%
PepsiCo Inc
142,262
12.6
15.9
20.5
3.4
40.9
1.6
53%
3.0%
12.4
19.0
8.3
6.0%
6.3%
Procter & Gamble Co/The 215,385
13.1
15.9
19.5
-0.1
17.1
1.4
26%
3.4%
24.8
21.4
3.4
3.4%
6.2%
Johnson & Johnson
280,438
10.7
12.8
16.1
3.8
22.7
-0.6
-26%
3.0%
44.5
19.3
3.6
4.6%
6.2%
Coca-Cola Co/The
179,230
15.6
18.7
20.0
2.2
28.0
1.6
40%
3.3%
-95.9
22.0
6.2
4.3%
5.8%
13.1
16.1
19.6
4.1
23.1
1.1
25%
3.1%
4.4
22.5
4.6
5.8%
6.5%
Average
SOURCES: MORGANS, BLOOMBERG
*Priced as at 28/05/215
1.6 Potential risks/issues to consider

Movements in the USD/EUR can impact reported earnings - Given
the large percentage of earnings generated outside Australia and its large
position in North America, AMC recently moved from AUD to USD
reporting of its financial accounts from FY15 onwards. The reason for this
was to limit the currency impact on the translation of earnings from
multiple regions. In conjunction with this move, AMC will also declare
6
Amcor
May 29, 2015
future dividends in USD. Approximately 55% of AMC’s earnings are exposed
to movements in the USD, with the EUR representing around half of this
exposure. On average, the annualised sensitivity to reported NPAT from a 1c
movement in the USD/EUR is US$3m (0.4%).

Input costs for resin and aluminium – AMC’s main raw material costs
are resin (sourced from oil) and aluminium. The cost of these raw materials
is largely passed through to the customer through inbuilt clauses in
customer contracts. Despite these inbuilt clauses, fluctuations in the prices
of resin and aluminium can have an impact on the business due to a timing
lag in its recovery from the customer. In the Rigid Plastics division, input
costs are recovered every 30 days so the impact is fairly minimal. However,
the impact on the Flexibles division could be larger due to a longer
(three-month) recovery period. This timing lag can impact earnings in an
environment where the prices of raw materials are volatile, such as during
the GFC.
Figure 6: Flexibles raw material input costs
US$
SOURCE: AMCOR

Bad weather - the Rigid Plastics business operates largely in North
America and Latin America, with a large exposure to cold beverage volumes
in those regions. Demand for cold beverages increases during the warmer
months and decreases during the cooler months. Volumes are therefore
affected during years where there is a particularly cold or wet summer,
which was the case during FY13.

Economic growth in Western Europe and North America –
Economic growth in AMC’s key markets of Western Europe and North
America has struggled to gain momentum in the past few years. While
AMC’s volumes do ultimately prove to be resilient through an economic
cycle (as evidenced during the GFC), a sustained period of subdued volume
growth can impact future earnings.

Acquisitions – Management has had a strong track record to date with
disciplined acquisitions and adding value through extracting cost and
synergy benefits. This is evidenced by management being able to increase
ROFE from 10.5% in FY09 to 19.4% in FY14. In contrast, over the same time
period Brambles has seen ROIC fall from over 21% to 16% (with a target to
return ROIC back to 20% by FY19) on the back of a number of acquisitions.
While we expect AMC to continue to exercise caution and discipline with all
future acquisitions, there always remains an element of risk given a large
part of future growth is likely to be from emerging markets.
7
Amcor
May 29, 2015
2. COMPANY OVERVIEW
AMC’s international footprint expands over 180 manufacturing sites across 43
countries. Following the demerger of Orora (ORA) in December 2013, AMC’s
portfolio presently consists of two focused packaging business divisions –
Flexibles and Rigid Plastics. AMC is a constituent of the S&P/ASX 50 index.
2.1 Stable, defensive end markets
AMC offers investors exposure to a largely defensive earnings stream with
growth potential from expansion into new and emerging markets. Volumes in
these staple industries are very stable and generally resilient to fluctuations in
economic activity. AMC’s geographic diversity gives investors exposure to not
only developed regions such as Western Europe and North America, but also
emerging markets such as Eastern Europe, Asia and Latin America. While AMC
is split into two primary business units – Flexibles and Rigid Plastics - it is
primarily managed on a geographical basis with a unique strategy for each
country. The majority of AMC’s revenue (95%) is derived from outside Australia
and New Zealand.
Figure 7: AMC revenue by product (FY14A)
Figure 8: AMC revenue by region (FY14A)
ANZ, 5%
Title:
Source:
Rigid Plastics,
32%
Western Europe,
34%
Please fill in the values above to have them entered in your rep
Emerging
Markets, 30%
Flexibles, 68%
North America,
31%
SOURCES: MORGANS, COMPANY REPORTS
SOURCES: MORGANS, COMPANY REPORTS
Examples of products in the Flexibles packaging segment include confectionary
wrappers, bread bags, chips packets and syringe & needles packaging. Examples
of Rigid Plastic packaging include drinks bottles, yoghurt tubs and shampoo
bottles. These products highlight the defensive nature of AMC’s end markets.
8
Amcor
May 29, 2015
Figure 9: AMC products
SOURCE: AMCOR
Figure 10: AMC SWOT analysis
Strengths
Weaknesses
Defensive and stable end markets
Global footprint means reported earnings exposed to
various currency movements
Rising input costs can affect margins due to a timing
lag in the passthrough to customers
Global footprint leveraged to emerging markets
Strong management team with proven track record
Opportunities
Threats
Strong cash flow generation leading to capital
management opportunities
Acquisitions in fast growing emerging markets
Political, regulatory instability in emerging markets can
affect local operations
Sustainably weaker EUR/USD will affect translation of
European earnings back into USD
New product innovation driving growth
Inability to extract expected synergies from
acquisitions
Further cost out from improving operational efficiencies Rising health concerns could affect tobacco
consumption
SOURCES: MORGANS
2.2 Key drivers
The fundamental driver of AMC’s business is volume growth in the key end
markets of food, beverage, consumer & household products, healthcare and
tobacco. The general growth rate is therefore linked to GDP growth in the
main developed markets of Western Europe and North America, in addition to
the emerging markets of Asia, Eastern Europe and Latin America.
Over the last five years, AMC has generally seen flat to modest volume growth in
North America, Western Europe and Australasia and we expect this level of
growth to continue. We forecast volume growth of 2-3% going forward, in line
with our general GDP growth forecast in developed markets, and expect
emerging markets to grow at a faster rate due to a higher level of economic
growth and increased demand for packaged products.
The chart below shows packaging spend per capita as a portion of GDP per
capita for various countries. It highlights that at a certain level of wealth,
packaging spend accelerates as countries develop and demand for modern, safer
packaged goods increases. With the exception of Vietnam, AMC has a presence
in all of the countries in the chart. We therefore expect a continued increase in
global wealth, especially from emerging nations, to underpin future growth in
earnings.
9
Amcor
May 29, 2015
Figure 11: Packaging spend accelerates as wealth increases
SOURCE: COMPANY REPORTS
Scale of operations is also a key driver of earnings growth as it allows
increased utilisation of AMC’s manufacturing plants leading to a reduction in
operating costs per unit of goods sold. AMC is constantly reviewing its
manufacturing sites around the world to extract further efficiencies or
consolidate production facilities. This can lead to further margin improvement
across the business.
With AMC’s main customer base being the large multinational FMCG
companies, another driver of earnings is the rate at which these companies
expand into new markets and regions. AMC’s portfolio of products and
global presence gives it the ability to service these clients and move with them
into higher growth areas. This decreases the risk of AMC setting up greenfield
operations themselves and allows a customer contract in advance of any
potential growth capital expenditure.
2.3 Business divisions
Flexibles
The Flexibles division is the largest business in the portfolio, accounting for
around 68% of group revenues and 73% of EBIT in FY14. The business is split
into three sub-divisions – Europe & Americas, Asia Pacific and Tobacco
Packaging. Growth in the past few years has been driven by acquisitions and
strong performances in Tobacco Packaging and the Asia Pacific region
(particularly China), while Europe & Americas has been flat. In FY14, the
division generated 3% EBIT growth on the back of operating efficiencies,
acquisitions and improved product mix despite a 2% fall in revenue.
We forecast Flexibles revenue to grow on average by 2.5% pa and EBIT by 5% pa
between FY15-18F, driven mainly by a recovery in economic conditions in
Western Europe and North America, continued growth from emerging markets,
acquisitions and further cost out. On a constant currency basis, we expect EBIT
to grow by 7% pa.
10
Amcor
May 29, 2015
Figure 12: Flexibles revenue split
Figure 13: Flexibles EBIT and EBIT margins
(€m)
(€m)
7,000
Title:
Source:
900
800
6,000
700
16%
14%
Please fill in the values above to have them entered
in your rep
12%
5,000
600
10%
4,000
500
3,000
400
8%
6%
300
2,000
4%
200
1,000
2%
100
0
0
FY11A
FY12A
FY13A
Europe & Americas
FY14A
FY15F
Tobacco Packaging
FY16F
FY17F
FY18F
0%
FY11A
FY12A
Asia Pacific
FY13A
FY14A
EBIT
SOURCES: MORGANS FORECASTS, COMPANY REPORTS
FY15F
FY16F
FY17F
FY18F
EBIT margin (RHS)
SOURCES: MORGANS FORECASTS, COMPANY REPORTS
A look at AMC’s acquisitions over the past five years shows that most
transactions have been in the Flexibles segment (including Tobacco Packaging).
Out of the 19 transactions completed to date, only the purchase of Ball Plastics
in FY11 was in the Rigid Plastics space. A large portion of acquisitions has also
been in various emerging market countries such as China, India, Indonesia,
Argentina and Brazil. We expect AMC to continue to pursue opportunities in the
Flexibles and Tobacco Packaging segments with a continued focus on higher
growing emerging market areas.
Figure 14: AMC acquisitions since 2010
Acquisition
Alcan Packaging
Location
Business group
Completion date
Currency
Acquisition price
($m)
1,948
Global
Flexibles
2HFY10
USD
Alcan Medical Flexibles
USA
Flexibles Europe & Americas
1HFY11
USD
65
Ball Plastics Packaging
USA
Rigid Plastics
1HFY11
USD
280
B-Pack Due
Techni-Chem
Beijing VPS minority interests
Aperio
International Playcard & Label Co.
Uniglobe
Aluprint
Chengdu minority interests
Shorewood
Italy
Flexibles Europe & Americas
1HFY11
EUR
43
Australia
Flexibles Asia Pacific
1HFY11
AUD
N/A
N/A
China
Flexibles Asia Pacific
2HFY12
AUD
Australia
Flexibles Asia Pacific
2HFY12
AUD
238
Argentina
Tobacco Packaging
1HFY13
USD
N/A
20
India
Flexibles Asia Pacific
1HFY13
AUD
Mexico
Tobacco Packaging
1HFY13
USD
40
China
Flexibles Asia Pacific
1HFY13
AUD
N/A
115
USA, Mexico, Sth Korea
Tobacco Packaging
2HFY13
USD
Jiangsu Shenda Group
China
Flexibles Asia Pacific
1HFY14
RMB
350
Parry Enterprises India
India
Flexibles Asia Pacific
1HFY14
AUD
N/A
50
Detmold
Bella Prima
Zhongshan Tian Cai
Nampak Flexibles
Souza Cruz
Australia
Flexibles Asia Pacific
1HFY14
AUD
Indonesia
Flexibles Asia Pacific
1HFY15
AUD
27
China
Flexibles Asia Pacific
2HFY15
RMB
211
South Africa
Flexibles
2HFY15
ZAR
250
Brazil
Tobacco Packaging
2HFY15
BRL
96
SOURCES: MORGANS, COMPANY REPORTS
Rigid Plastics
The Rigid Plastics division accounts for around 32% of group revenues and 27%
of EBIT. Margins in the division (9%) are lower than those in the Flexibles
business (12%), which we suspect could be due to its exposure to the highly
commoditised Carbonated Soft Drinks & Water (CSDW) product segment where
customers have recently shifted to self-manufacturing.
The business predominantly operates in North America and Latin America.
Revenue growth in the past few years has been flat in North America while Latin
America has been stronger. Despite a flat revenue environment, Rigid Plastics
EBIT growth has been solid (averaging 7.5% pa since FY12) due to favourable
11
Amcor
May 29, 2015
changes in product mix into higher value-added segments, improved
manufacturing efficiencies and exiting lower margin volumes.
We forecast the Rigid Plastics division to grow revenue on average by 4% pa and
EBIT by 5.7% pa between FY15-18F, driven mainly by an economic recovery in
North America, continued growth in Latin America and a further shift from
lower margin products into higher margin segments.
Figure 15: Rigid Plastics revenue split
Figure 16: Rigid Plastics EBIT and EBIT margins
(US$m)
(US$m)
4,000
400
3,500
350
3,000
300
2,500
250
2,000
200
1,500
150
1,000
100
500
50
Title:
Source:
12%
10%
Please fill in the values above to have them entered in your rep
8%
6%
4%
2%
0
0
FY11A
FY12A
FY13A
North America
FY14A
FY15F
Latin America
FY16F
FY17F
FY18F
0%
FY11A
FY12A
FY13A
Bericap/BG/India
FY14A
EBIT
SOURCES: MORGANS, COMPANY REPORTS
FY15F
FY16F
FY17F
FY18F
EBIT margin (RHS)
SOURCES: MORGANS, COMPANY REPORTS
2.4 Customer base
AMC serves a wide range of regional and global customers with strong
relationships with multinational Fast Moving Consumer Goods (FMCG)
companies. These customers operate in defensive, stable industries and include
Danone, Nestle, British American Tobacco, PepsiCo, Procter & Gamble,
Unilever and Johnson & Johnson. Customer contracts usually last 2-5 years,
with over 70% of contracts typically renewed or rolled over before the expiry
period as AMC works with its customers on continually improving its packaging
offering.
In our view, AMC’s geographic reach, scale of operations and innovation
capability gives it a competitive advantage in serving these multinational
customers. We believe this gives AMC the opportunity to improve its share with
these customers over time and puts AMC in a strong position to partner with
them as they look to grow into higher growth markets.
Figure 17: AMC revenue by customer industry (FY14A)
Home & Personal Care,
3%
Other, 3%
Healthcare, 14%
Food, 34%
Tobacco Packaging,
15%
Beverage, 31%
SOURCES: MORGANS, COMPANY REPORTS
12
Amcor
May 29, 2015
2.5 Competitive environment
AMC is one of the world’s largest packaging companies and has global leading
market positions in food flexibles, healthcare flexibles, rigid plastic containers
and tobacco packaging. There are a number of large players that compete with
AMC globally, with competition largely based on product and geographic
location.
In the Flexibles market, the main competitors in Europe are Constantia, Mondi
and Sealed Air. In North America, the largest players are Bemis, Sealed Air and
Printpack. There are fewer global competitors in the Asia-Pacific region with a
more fragmented industry structure. The region has a large number of
local/regional competitors in each domestic market (with the exception of
Australia and New Zealand which have a more consolidated structure).
In the Rigid Plastics market, AMC’s main competitors in the North American
market are Plastipak, Constar Plastics and Graham Packaging with a good
(typically duopoly/oligopoly) industry structure.
Competitors in the Tobacco Packaging market include Dominion Packaging in
North America, Mayr Melnhof Packaging, AR Cartons and Gundlach in Europe
and New Toyo in Asia.
3. FINANCIALS
3.1 Defensive business with low earnings volatility
On a constant currency basis, we forecast 5.7% EBIT growth in FY15 driven
largely by continued organic growth, benefits from recent acquisitions and
further cost out. However, approximately 55% of AMC’s earnings are exposed to
movements in the USD. Reported growth (including the effects of currency), is
largely offset by our assumed USD appreciation, which negatively impacts the
translation of non-USD denominated earnings. On a reported basis, we forecast
flat (-0.2%) EBIT growth in FY15.
Between FY16-18F, we forecast 7% average EBIT growth pa, based on 5%
average underlying revenue growth, continued margin improvement from
further manufacturing efficiency gains and the benefits from recent acquisitions.
Over the long term, we forecast EBIT growth of around 5% pa. Upside surprise
could come from further value accretive acquisitions, faster-than-expected
growth from emerging markets and increased packaging spend per capita as
nations become wealthier.
13
Amcor
May 29, 2015
Figure 18: AMC income statement summary
(US$m)
FY14A*
FY15F
FY16F
FY17F
FY18F
9,965
9,674
9,810
10,400
11,131
- Flexibles
6,779
6,338
6,347
6,816
7,417
- Rigid Plastics
3,192
3,336
3,463
3,585
3,715
-7
0
0
0
0
-8,507
-8,241
-8,334
-8,815
-9,412
1,458
1,433
1,476
1,585
1,719
-376
-353
-352
-371
-393
1,082
1,080
1,124
1,214
1,326
- Flexibles
823
800
825
899
994
- Rigid Plastics
298
321
341
356
373
- Corporate/Other
-39
-41
-41
-41
-41
-193
-183
-192
-203
-185
Total revenue
- Other
Operating costs
EBITDA
D&A
Total EBIT (inc Assocs)
Net interest
PBT
889
897
932
1,012
1,140
Tax
-182
-189
-198
-225
-248
Minorities
-29
-29
-31
-33
-37
Normalised NPAT
678
679
703
754
855
Abnormals (after-tax)
0
0
0
0
0
678
679
703
754
855
EPS - normalised (UScps)
56.2
56.5
59.8
64.9
73.6
EPS - reported (UScps)
56.2
56.5
59.8
64.9
73.6
DPS - USD
39.2
39.9
41.9
45.4
51.5
DPS- AUD
43.0
51.2
57.1
61.3
69.6
Dividend payout ratio
70%
71%
70%
70%
70%
0%
0%
0%
0%
0%
EBITDA margin
14.6%
14.8%
15.1%
15.2%
15.4%
EBIT margin
10.9%
11.2%
11.5%
11.7%
11.9%
NPAT margin
6.8%
7.0%
7.2%
7.2%
7.7%
EBITDA growth
5.6%
-1.7%
3.0%
7.4%
8.4%
EBIT growth
6.8%
-0.2%
4.1%
8.0%
9.2%
NPAT growth
15.0%
0.2%
3.6%
7.2%
13.4%
EPS growth
-4.2%
0.5%
5.9%
8.5%
13.4%
Reported NPAT
Franking
SOURCES: MORGANS, COMPANY REPORTS
*Adjusted for ORA demerger
We forecast AMC’s FY15F gearing to fall slightly to 1.9x (FY14 2.0x) on a
ND/EBITDA basis. This is well below management’s target of between
2.25-2.75x. Given gearing levels remain comfortable, we think AMC has plenty
of firepower to pursue acquisitions with plenty of scope for continued increases
in dividends.
Figure 19: AMC balance sheet summary
(US$m)
FY14A
FY15F
FY16F
FY17F
FY18F
Current assets
3,327
3,020
3,146
3,303
3,517
Total assets
9,134
8,341
8,467
8,625
8,838
Total liabilities
6,995
6,378
6,577
6,508
6,465
Shareholder's equity
2,139
1,962
1,891
2,117
2,373
Net debt
3,014
2,763
2,830
2,594
2,320
58%
58%
60%
55%
49%
7.5
7.8
7.7
7.8
9.3
ROA
10%
12%
13%
14%
15%
ROE
24%
33%
37%
38%
38%
ND/(ND+E)
EBITDA/net interest
SOURCES: MORGANS, COMPANY REPORTS
14
Amcor
May 29, 2015
We forecast free cash flow (post dividends) to be US$241m in FY15 and expect it
to remain largely steady going forward. We assume capex remains broadly in
line with depreciation.
Figure 20: AMC cash flow summary
(US$m)
FY14A
FY15F
FY16F
FY17F
FY18F
1,094
1,049
1,043
1,109
1,227
-333
-326
-352
-371
-393
761
723
691
738
834
-456
-482
-472
-503
-559
306
241
219
236
275
Operating cash flow
Capex
Free cash flow (pre-dividends)
Dividends paid
Free cash flow (post-dividends)
SOURCES: MORGANS, COMPANY REPORTS
3.2 Divisional earnings summary
Flexibles
Flexibles is the core driver of group earnings as it represents 68% of revenue
and 73% of EBIT. The business is split into three sub-divisions – Europe &
Americas, Asia Pacific and Tobacco Packaging.
We forecast Flexibles revenue to grow on average by 2.5% pa and EBIT by 5% pa
between FY15-18F driven mainly by a recovery in economic conditions in
Western Europe and North America, continued growth from emerging markets
and further cost out. Growth is partially offset by our assumed USD
appreciation, impacting the translation of non-USD denominated earnings back
to USD. Given most of AMC’s acquisitions in the last five years has been in the
Flexibles segment (18 out of the last 19 deals), our forecasts could prove
conservative if future transactions continue this trend.
Rigid Plastics
The Rigid Plastics division accounts for 32% of group revenues and 27% of EBIT.
The currency translation impact on the business is relatively small given it
predominantly operates in North America and Latin America.
We forecast Rigid Plastics to grow revenue on average by 4% pa and EBIT by
5.7% pa between FY15-18F driven mainly by an economic recovery in North
America, continued growth in Latin America and a further shift from lower
margin products into higher margin segments. We forecast 3.7% EBIT growth
pa in the long term.
Figure 21: Business unit forecasts
FY14A
FY15F
FY16F
FY17F
FY18F
Revenue
4,996
5,242
5,554
5,725
5,933
- growth
-2%
5%
6%
3%
4%
606
663
722
755
795
Flexibles (€m)
EBIT
- growth
3%
9%
9%
5%
5%
- margin
12.1%
12.6%
13.0%
13.2%
13.4%
Revenue
3,192
3,336
3,463
3,585
3,715
- growth
0%
4%
4%
4%
4%
298
321
341
356
373
Rigid Plastics (US$m)
EBIT
- growth
4%
8%
6%
5%
5%
- margin
9.3%
9.6%
9.8%
9.9%
10.0%
SOURCES: MORGANS FORECASTS, COMPANY REPORTS
3.3 Reported earnings impacted by geographical exposure
AMC’s presence across 43 countries gives it good diversification of earnings.
With no hedging in place, this can also be a negative with the company exposed
to multiple local currency translations back into USD reported earnings.
Approximately 55% of AMC’s earnings is exposed to movements in the USD.
15
Amcor
May 29, 2015
The USD/EUR represents over half of this exposure. On average, a 1c movement
in the USD against the EUR impacts NPAT by approximately US$3m (0.4%) (on
an annualised basis).
Figure 22: AMC revenue by region (FY14A)
ANZ, 5%
Western Europe, 34%
Emerging Markets, 30%
North America, 31%
SOURCES: MORGANS, COMPANY REPORTS
We set out our currency forecasts below. Given we forecast a general
strengthening of the USD over the next few years, we expect AMC’s geographical
diversity to be a headwind on reported earnings.
Figure 23: Currency forecasts
FY15F
FY16F
FY17F
Long term
EUR/USD
1.21
1.14
1.19
1.25
AUD/USD
0.84
0.73
0.74
0.74
SGD/USD
0.78
0.78
0.76
0.76
SOURCES: MORGANS
4. VALUATION AND RECOMMENDATION
4.1 DCF valuation
On a DCF basis, we value AMC at A$15.20 per share. Key inputs into our DCF
valuation include a WACC of 8.9%, geared beta of 1.4 (an ungeared beta of 1.0),
and terminal year growth rate of 2.5% pa. We convert cash flows in each year to
AUD at forecast exchange rates (see Figure 23) and discount the AUD cash flows
to a present value.
Figure 24: DCF valuation
(A$m)
Valuation
Comment
PV of forecast cash flow
9,054
WACC of 8.9%
PV of perpetuity cash flows
11,931
Terminal year growth rate of 2.5%
Total firm value
20,985
US$15,529m
AMVIG/other
559
US$414m
Enterprise value
21,544
US$15,943m
Net debt
3,655
US$2,705m
Equity value
17,889
US$13,238m
Shares (m)
1,177
Equity value per share (A$)
15.20
SOURCES: MORGANS, COMPANY REPORTS
16
Amcor
May 29, 2015
The key valuation driver in our model is group EBIT margins and the long-term
AUD/USD exchange rate. Given AMC reports in USD, we are not surprised by
the sensitivity to the fluctuation in the AUD/USD given earnings are translated
back to AUD in order to derive our AUD-based valuation. Our model assumes a
74c long-term exchange rate. Increasing our assumption to 84c reduces our
DCF valuation by 14%, while decreasing our assumption to 64c increases our
DCF valuation by 18%. The USD/EUR exchange rate and US GDP growth
represent the next biggest drivers of our valuation.
Figure 25: DCF valuation sensitivities (A$/share)
Group EBIT margins
2.59
3.20
2.06
AUDUSD
2.69
1.36
USDEUR
US GDP growth
1.95
0.76
0.66
0.32
SE Asia GDP growth
Europe GDP growth
0.33
0.20
11.00
12.00
13.00
14.00
0.56
15.00
16.00
17.00
18.00
19.00
SOURCES: MORGANS
Figure 26: DCF valuation scenarios
Bear case
Base case
10%
11-12%
14%
AUDUSD
84c long-term
74c long-term
64c long-term
USDEUR
Group EBIT margins
Bull case
90c long term
80c long term
70c long term
US GDP growth
2% pa
~3% pa
4% pa
SE Asia GDP growth
4% pa
~5-6% pa
7% pa
Europe GDP growth
2% pa
~2-3% pa
4% pa
SOURCES: MORGANS
4.2 Sum of the parts valuation
We set out our sum-of-the-parts (SOTP) valuation below. On a SOTP basis, we
value AMC at A$15.65 per share. We utilise a 15% premium to the average global
listed peers FY16F EV/EBITDA multiple, which we think is appropriate given
AMC’s leading global market positions in Flexibles, Rigid Plastics and Tobacco
Packaging.
Figure 27: SOTP valuation
FY16F
EBITDA
(A$m)
Flexibles
Adj avg peer Implied EV
EV/EBITDA
(A$m) Comment
1,405
10.9
15,353 15% premium to global peers
Rigid Plastics
658
10.9
7,184 15% premium to global peers
Corporate/other
-85
10.9
Total
1,978
AMVIG
-930
21,607
263 AMC 47.9% stake
Other
200
Total enterprise value
Net debt
22,070
3,655
Equity value
18,415
Equity value per share (A$)
15.65
SOURCES: MORGANS
17
Amcor
May 29, 2015
Figure 28: Global packaging comps
EBIT
Mkt cap EV/EBITDA EV/EBIT
ND/EBITDA
interest
2-yr EPS 2-yr EBIT
(m)
(x)
(x)
PE (x) EPSg (%) ROE (%)
(x)
ND/(ND+E) Div yield cover (x) P/FCF P/B CAGR
CAGR
Company name
(LC)
2016
2016
2016
2016
2016
2016
2016
2016
2016
Sealed Air Corp
10,365
11.7
15.6
20.0
14.9
37.7
3.3
78%
1.1%
3.4
-29.1
2016 2016
6.9
16.2%
Bemis Co Inc
4,576
9.3
12.8
16.8
8.0
18.1
2.1
48%
2.5%
8.6
74.8
3.1
7.1%
4.2%
Berry Plastics Group
4,138
8.9
14.5
17.1
19.5
34.0
4.3
103%
0.0%
2.5
12.9
15.4
18.4%
11.0%
MeadWestvaco Corp
8,679
9.6
14.6
23.6
21.9
11.9
1.4
29%
2.0%
4.4
242.4
2.4
16.0%
15.3%
Packaging Corp of America
6,914
7.5
10.7
13.5
14.4
26.8
1.9
60%
3.2%
9.7
21.7
3.5
10.2%
8.6%
Sonoco Products Co
4,662
8.2
12.2
15.9
10.5
17.7
1.6
42%
3.2%
9.0
19.6
2.7
9.8%
6.7%
Nine Dragons Paper
30,330
10.3
14.8
15.2
36.6
7.6
5.1
54%
1.8%
3.2
30.6
1.1
22.5%
17.3%
8.4%
Huhtamaki OYJ
3,293
9.9
14.1
17.4
12.5
17.5
0.8
25%
2.6%
9.2
60.9
2.9
10.1%
9.4%
Ball Corp
10,046
10.7
14.0
18.5
10.5
34.4
2.5
71%
0.7%
5.8
16.2
5.5
11.2%
7.9%
Crown Holdings Inc
7,789
9.0
11.0
14.0
11.8
82.2
3.2
92%
0.0%
4.5
13.1
7.5
10.6%
5.2%
Rexam PLC
3,998
8.8
12.2
14.8
9.1
17.2
1.9
44%
0.0%
6.4
23.2
2.3
9.8%
5.6%
9.5
13.3
17.0
15.4
27.7
2.5
59%
1.6%
6.1
44.2
4.9
12.9%
9.0%
Average
SOURCES: MORGANS, BLOOMBERG
*Priced at 27/05/2015
4.3 PE valuation
On a PE basis, we value AMC at A$15.52 per share. Our target price is also based
on our PE valuation. We derive our valuation by converting FY16F USD
reported earnings into AUD at the forecast average AUD/USD exchange rate of
73c. We then apply our target FY16F PE multiple of 19x to the AUD-based
earnings.
Figure 29: PE valuation
FY16F
Morgans EPS (US$ cps)
59.8
AUD/USD
0.73
Morgans EPS (A$ cps)
81.7
Target PE multiple (x)
19.0
PE valuation
15.52
SOURCES: MORGANS
Putting our PE relative valuation into context to the Australian market, our
target PE multiple of 19x broadly represents a 5% premium to the Industrials
(ex-financials) index. We think AMC is deserving of a premium given its stable
and defensive growth profile, strong free cash flow generation and superior
financial metrics (ie. ROFE >19%) relative to the market.
Our target PE multiple for AMC is also lower than BXB’s FY16F PE multiple of
21.6x. Given the similar nature of the two businesses we don’t think AMC should
trade at such a significant PE discount (18%), and believe somewhere between
the Industrials (ex-financials) of 18x and where BXB is currently trading at is
appropriate.
With a total shareholder return of 11%, we initiate coverage on AMC with an
Add rating.
18
Amcor
May 29, 2015
Figure 30: AMC forward 1-year PE relative to Industrials (ex-fin) index
(x)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
AMC PE rel to Industrials (ex-fin)
Average
SOURCES: MORGANS, BLOOMBERG
19
Amcor
May 29, 2015
Figure 31: Financial summary
Income statement (US$m)
Divisional sales
Total revenue
EBITDA
EBITDA (incl associates profit)
Associates income
D&A
EBIT
EBIT (incl associates profit)
Net interest expense
Pre-tax profit
Income tax expense
Minority interest
Adjusted NPAT
Adjusted EPS (US$ cps)
Net significant items
Reported NPAT
DPS (US$ cps)
DPS (A$ cps)
AIFRS
FY13A
12,763.3
12,955.4
1,626.3
1,652.8
26.5
-489.1
1,137.3
1,163.8
-226.1
937.7
-201.6
-28.6
707.5
58.6
-91.3
616.2
41.1
40.0
AIFRS
FY14A
9,964.5
10,081.0
1,439.0
1,458.0
19.0
-375.9
1,063.1
1,082.1
-193.2
888.9
-182.2
-28.9
677.8
56.2
0.0
677.8
39.2
43.0
AIFRS
FY15F
9,673.6
9,803.2
1,407.0
1,432.9
26.0
-352.9
1,054.1
1,080.0
-183.0
897.0
-188.5
-29.4
679.1
56.5
0.0
679.1
39.9
51.2
AIFRS
FY16F
9,810.1
9,939.7
1,448.7
1,476.4
27.7
-352.3
1,096.4
1,124.1
-192.2
931.9
-197.9
-30.5
703.4
59.8
0.0
703.4
41.9
57.1
AIFRS
FY17F
10,400.4
10,530.0
1,555.7
1,585.4
29.8
-371.0
1,184.7
1,214.5
-202.5
1,012.0
-224.8
-33.2
754.0
64.9
0.0
754.0
45.4
61.3
Divisional sales revenue (US$m)
Flexibles
Rigid Plastics
Investments / Intersegment
Australasia & Packaging Dist.
Other
Total
FY13A
6,579.2
3,178.7
-17.5
3,022.8
0.0
12,763.3
FY14A
6,779.4
3,192.3
-7.2
0.0
0.0
9,964.5
FY15F
6,337.9
3,335.6
0.1
0.0
0.0
9,673.6
FY16F
6,347.2
3,462.9
0.1
0.0
0.0
9,810.1
FY17F
6,815.7
3,584.6
0.1
0.0
0.0
10,400.4
Divisional EBIT (US$m)
Flexibles
Rigid Plastics
Investments / Intersegment
Australasia & Packaging Dist.
Other
Total
FY13A
761.1
286.8
-34.3
150.2
0.0
1,163.8
FY14A
822.6
298.2
-38.7
0.0
0.0
1,082.1
FY15F
800.0
321.4
-41.3
0.0
0.0
1,080.0
FY16F
824.8
340.6
-41.2
0.0
0.0
1,124.1
FY17F
899.3
356.1
-40.9
0.0
0.0
1,214.5
Cash flow statement (US$m)
EBITDA
Change in working capital
Net interest (pd)/rec
Taxes paid
Other oper cash items
Operating cash flow (1)
Capex (2)
Disposals/(acquisitions)
Investing cash flow
Cash flow from invest
Incr/(decr) in equity
Incr/(decr) in debt
Cash dividend paid
Other financing cash flow
Financing cash flow
Forex and disc ops
Inc/(decr) cash
Free cash flow (1+2)
per share (US$ cps)
per share (A$cps)
FY13A
1,535.0
0.0
-226.1
-141.8
-92.2
1,075.0
-488.6
-114.0
-2.3
-604.9
-60.2
115.4
-491.2
-0.8
-436.9
12.4
45.6
586.3
48.9
47.6
FY14A
1,439.0
105.5
-194.3
-136.9
-119.6
1,093.7
-332.5
-13.3
-122.3
-468.1
-20.3
-43.7
-455.7
28.9
-490.7
21.1
156.0
761.2
63.5
69.1
FY15F
1,407.0
101.9
-183.0
-188.5
-88.2
1,049.2
-326.1
27.9
-1.0
-299.2
-207.3
-204.4
-482.5
-2.7
-896.9
-7.1
-154.0
723.1
60.3
72.2
FY16F
1,448.7
-15.5
-192.2
-197.9
0.0
1,043.1
-352.3
0.0
0.0
-352.3
-285.7
67.0
-472.1
0.0
-690.8
0.0
0.0
690.8
57.6
78.6
FY17F
1,555.7
-19.2
-202.5
-224.8
0.0
1,109.2
-371.0
0.0
0.0
-371.0
0.0
-235.6
-502.6
0.0
-738.2
0.0
0.0
738.2
61.6
83.1
FY13A
366.1
1,695.9
1,682.1
463.0
2,132.7
4,526.5
648.0
11,514.5
2,862.1
1,098.3
2,945.6
694.6
483.1
8,083.7
3,542.3
-719.5
521.3
86.7
3,430.7
11,514.5
FY14A
509.7
1,396.5
1,329.0
486.8
1,996.3
2,920.1
495.6
9,133.9
2,490.3
521.8
3,001.4
502.2
479.0
6,994.7
2,717.8
-1,276.8
589.1
109.2
2,139.1
9,133.9
FY15F
404.5
1,270.0
1,259.6
456.5
1,871.9
2,661.3
416.8
8,340.6
2,221.1
695.0
2,472.6
454.8
534.9
6,378.4
1,940.8
-579.8
490.2
111.0
1,962.2
8,340.6
FY16F
404.5
1,333.6
1,322.7
456.5
1,871.9
2,661.3
416.8
8,467.3
2,332.3
695.0
2,539.6
454.8
554.9
6,576.6
1,655.1
-579.8
704.4
111.0
1,890.7
8,467.3
FY17F
404.5
1,412.5
1,401.0
456.5
1,871.9
2,661.3
416.8
8,624.5
2,470.3
695.0
2,304.0
454.8
583.5
6,507.6
1,655.1
-579.8
930.6
111.0
2,116.9
8,624.5
Balance sheet (US$m)
Cash & Deposits
Trade debtors
Inventory
Investments
Intangible assets
Fixed assets
Other assets
Total assets
Trade payables
Short term borrowings
Long-term borrowings
Provisions
Other liabilities
Total liabilities
Share capital
Other reserves
Retained earnings
Minority interest
Total shareholders' equity
Total liabilities & SE
Add
Projected return
Current share price
Price target
Upside (downside)
Dividend yield
TSR
A$14.47
A$15.52
7.2%
3.9%
11.2%
Shares on issue (m)
AMC market cap (A$m)
Free float
Trading multiples (x)
EV/EBITDA
EV/EBIT
PE
1,199
17,352
100%
FY13A
9.2x
13.4x
18.1x
FY14A
10.5x
14.4x
18.9x
FY15F
10.7x
14.5x
18.8x
FY16F
10.4x
13.9x
17.7x
Valuation summary
DCF
Sum-of-the-parts
PE-relative
A$15.20
A$15.65
A$15.52
DCF inputs
RF rate
Debt premium
Cost of debt
Beta
MRP
Cost of equity
Net debt (A$m)
EV (A$m)
L/T growth
WACC
Key earnings ratios summary
Revenue growth YoY
EPS growth (adjusted)
Dividend yield
Payout ratio
Free cash flow yield
Effective tax rate
FY17F
9.6x
12.9x
16.3x
4.3%
2.0%
6.3%
1.0
6.0%
12.5%
3,517
20,869
2.5%
8.9%
FY13A
1.5%
9.1%
2.8%
70.1%
3.3%
21.5%
FY14A
-21.9%
-4.2%
3.0%
69.8%
4.8%
20.5%
FY15F
-2.9%
0.5%
3.5%
70.6%
5.0%
21.0%
FY16F
1.4%
5.9%
3.9%
70.0%
5.4%
21.2%
FY17F
6.0%
8.5%
4.2%
70.0%
5.7%
22.2%
FY13A
3,678
107.2%
51.7%
2.2x
5.1x
FY14A
3,014
140.9%
58.5%
2.1x
5.6x
FY15F
2,763
140.8%
58.5%
1.9x
5.9x
FY16F
2,830
149.7%
59.9%
1.9x
5.8x
FY17F
2,594
122.6%
55.1%
1.6x
6.0x
Working capital metrics
Inventory/Sales
Receivables/Sales
Payables/Sales
FY13A
13.2%
13.3%
22.4%
FY14A
13.4%
13.5%
22.9%
FY15F
13.0%
13.1%
23.0%
FY16F
13.5%
13.6%
23.8%
FY17F
13.5%
13.6%
23.8%
Return metrics
Return on assets
Return on equity
FY13A
10.1%
20.5%
FY14A
10.5%
24.3%
FY15F
12.4%
33.1%
FY16F
13.4%
36.5%
FY17F
14.2%
37.6%
Key assumptions
Underlying volumes
US GDP growth
Europe growth
Emerging market growth
FY13A
FY14A
FY15F
FY16F
FY17F
2.5%
2.0%
5.1%
2.5%
2.0%
5.1%
2.7%
1.9%
5.7%
2.8%
1.9%
6.2%
2.9%
1.9%
6.2%
1.03
0.77
7.78
0.62
0.92
0.74
7.91
0.57
0.84
0.83
7.72
0.64
0.73
0.88
7.76
0.68
0.74
0.84
7.74
0.64
Revenue growth
Flexibles
Rigid Plastics
4.9%
-5.5%
3.0%
0.4%
-6.5%
4.5%
0.1%
3.8%
7.4%
3.5%
EBIT margins
Flexibles
Rigid Plastics
11.6%
9.0%
12.1%
9.3%
12.6%
9.6%
13.0%
9.8%
13.2%
9.9%
Balance sheet metrics
Net Debt
Gearing (ND/Equity)
Gearing (ND/ND+Equity)
Net debt/EBITDA
EBIT interest cover
Currency
AUD/USD
USD/EUR
USD/HKD
SDG/EUR
SOURCE: MORGANS, COMPANY REPORTS
20
Amcor
May 29, 2015
QUEENSLAND
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