Could investors hit the jackpot with Amcor Limited?

For an industry often considered ‘boring’, the packaging sector has certainly been running hot over the past year. Not only has market leader Amcor Limited (ASX: AMC) demerged its $1.7 billion carton and bottle business Orora, but competitor Pact Group has also undertaken a $1 billion listing on the ASX.

These new listings have enhanced investors’ focus on the sector, however arguably the most exciting recent development is a revolutionary new technology, Liquidform, which in the opinion of Amcor’s CEO Mr Ken MacKenzie, “has the potential to be one of the most important breakthrough technologies in liquid packaging.”

What does it mean for Amcor?

Liquidform has been in development since 2006 and offers a novel way to both form and fill a plastic container in one step. According to Amcor this process improvement could reduce operating costs by up to 25% – that’s an enormous saving!

Amcor believes industry-wide demand for the technology could see 800 machines installed per annum. According to a report in the Australian Financial Review the average cost of a Liquidform license is expected to be around $500,000 per machine.

Investors will need to wait for more financial details to come to light, as based on the few details available it looks like Amcor has hit the jackpot.

If we were to assume a high profit margin of around 50% could be achieved on Liquidform’s sales – given the technology is already developed, the major expense would presumably be a sales team. Then (and note I doubt this will be the case) it would suggest Amcor’s 50% share of the joint venture could contribute $100 million per annum.

Given the company made $327 million in after tax profits from continuing operations at the December interim results, it would seem unrealistic that Liquidform is about to become such a major contributor to the company. However, it is something for investors to watch closely, as the addition of a new capital light earnings stream would be a welcome addition to the global giant’s business.

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

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