Packaging company Pact Group Holdings Ltd (ASX: PGH) was established by Raphael Germinder in June 2002 with an aim of consolidating Australia's fragmented consumer packaging market. The company has since grown scale by acquiring 34 companies in the last 12 years, and listed on the ASX in December 2013 as a way of boosting balance sheet resources to fund further acquisitions.
Here are three things investors and potential investors should know about Pact Group:
- Pact is the largest supplier of rigid plastics and industrial metals in Australia and New Zealand. The company converts plastic resin and steel into packaging for the food, dairy, beverage, chemical, agricultural, and industrial sectors. Pact has an estimated 40% market share in Australia and New Zealand and provides packaging to the who's who of Australian companies. Pact's top-10 customers include BP, Bulla, Caltex, Coles, Dulux, Goodman Fielder, Lion, Murray Goulburn, Nufarm, PPG, Schweppes, and Unilever.
- Pact is expanding into Asia and analysts expect the majority of revenue growth to come from a growing presence in the region. The global rigid packaging market is growing at around 5.3% annually, however Asian growth is expected to approach 10% in coming years while Australian growth will remain around 4%. Pact currently has 5 of its 62 manufacturing plants located in Asia and the region now accounts for 25% of revenue, and future share price performance will hang on the ability of Asian revenue to grow.
- Finally, have you ever wondered what 'rigid plastics' actually were? The broad category includes dairy containers and bottles, margarine tubs, food jars, meat and bakery trays, plastic cubes, tinplate and plastic pails, plastic tubes and plastic cartridges, plastic bottle caps and closures, steel drums, reusable materials handling products, and plastic crates among other custom products. Pact's main competitors are the unlisted Visy group, Orora Ltd (ASX: ORA), and to a lesser degree Amcor Limited (ASX: AMC). Pact has limited scope to meaningfully grow its Australian business without high-cost acquisitions, and large clients have good bargaining power due to the low switching costs to competitors.
Foolish takeaway
Pact Group has a dominant market share in Australia and is growing its presence in Asia. While the Australian operations are extremely mature and restricted in terms of growth, the Asian market is showing good growth and should provide the majority of revenue growth moving forward. The direction of the share price will be dictated by the success or otherwise of the Asian business, but management have a great incentive to deliver – they own more than 40% of the company!
