A stock picker’s guide to Amcor Limited in 2014

The slimmed down firm has been in an acquisitive mode.

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Global packaging giant Amcor Limited (ASX: AMC) looks set for an impressive 2014 thanks to a string of acquisitions and the recent demerger of its Australasia Packaging Distribution (AAPD) business into the separately listed Orora Ltd (ASX: ORA).

Prior to demerger, Amcor had three divisions, namely: Flexibles, Rigid Plastics and AAPD. For the financial year (FY) ending 30 June 2013, the Flexibles division grew revenue by 8.6% and earnings before interest and tax (EBIT) by 11.9%, the Rigid Plastics division recorded a 5.5% fall in revenues but a 5.2% increase in EBIT. Meanwhile the AAPD division saw revenues increase by 2.5% but adjusted EBIT fall by 2.3%.

Although (as management went to lengths to highlight in demerger documentation) the AAPD business has been “set up for success” it would appear that much of the near-term forecast for improvements in earnings will come from cost saving initiatives rather than from top line revenue growth. In comparison, the growth outlook for the continuing Amcor business is appealing with exposure to emerging markets, innovation and acquisitions.

Focus on growth

Indeed during calendar year 2013 Amcor was busy making acquisitions. In July Amcor announced the acquisition of a China-based flexible packaging operation, in November it announced the acquisition of Detmold Flexibles, and in December the firm entered into an agreement to purchase the US assets of Constar. This all bodes well for growth in 2014.

Defensive Earnings

Another appealing aspect to Amcor and a reason many investors would describe the company as ‘blue-chip’ is the defensive end markets that it serves. With around 95% of sales into the consumer staple markets of food, beverage, tobacco and healthcare, Amcor’s sales are protected by the less volatile nature of these sectors.

Foolish takeaway

The new, slimmed down and more focused Amcor is a company with a higher growth profile than it had pre-demerger. The scheduled release of its half-yearly results on the 18 February will be closely monitored by investors, as will the results of competitor Pact Group Holdings Ltd (ASX: PGH) who will report its first results as a listed company.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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