There certainly is money to be made in the packaging business.
One of Australia’s wealthiest families, the Pratts, have built a multi-billion dollar fortune out of the humble cardboard box.
For investors, there are a number of ASX-listed options for gaining exposure to the packaging industry, the largest of which is Amcor Limited (ASX: AMC) with a market capitalisation of $17.8 billion.
Following behind is the still significant Amcor spin-off Orora Ltd (ASX: ORA), with a market capitalisation of $3.7 billion.
Rounding out the major listed packaging companies is Pact Group Holdings Ltd (ASX: PGH). It has ties to the Pratt family, with a market capitalisation of $2 billion.
Over the past decade, owners of Amcor’s shares have enjoyed total shareholder returns (TSR) – that’s share price appreciation plus dividends – of 15.2% per annum (pa).
That’s a very impressive return. For comparison, market stalwart Telstra Corporation Ltd (ASX: TLS) has achieved a TSR of 9.9% pa over the past decade.
With an impressive track record of creating double-digit shareholder value, Amcor is a stock which long-term, defensive investors could consider for their portfolio. Here’s why…
Solid growth expected
For the 12 months ending 30 June 2016, Amcor reported (on a constant currency basis) a 3.7% increase in revenue, an 11.3% boost in earnings per share (EPS) and a 4.3% increase in dividends.
Whilst management was coy on providing guidance other than “the outlook for the 2016/17 year is for higher earnings than the 2015/16 year, expressed in constant currency terms”, analysts appear to be expecting reasonably solid growth.
According to consensus data provided by Reuters, EPS growth of 11% and 10% is being forecast for FY 2017 and FY 2018 respectively.
Amcor broadly operates in two business units namely Flexibles and Rigid Plastics.
To highlight the global nature of Amcor’s operations and the exposure the group provides to a range of currencies and economies consider this:
- In FY 2016, sales by region for the Flexibles division were 48% Western Europe, 12% North America, 32% emerging markets and 8% Australia and New Zealand
- The Rigid Plastics division meanwhile recorded 66% of sales from North America and 34% of sales from Emerging Markets
With assets across the globe, Amcor offers important diversification for shareholders. This global asset base also offers potential for higher growth via the group’s exposure to faster growing overseas economies.
Many investors wish to own shares that will provide them with a reliable and preferably growing stream of dividends.
While Amcor’s trailing dividend yield of 3.6% might not appear exciting, particularly considering the dividend is unfranked, there are reasons to be positive.
Firstly, the dividend (as reported in US dollars) has grown each year for the past six years. This period includes the demerger of Orora which reduced the earnings of the Amcor group. This is a trend which is hopefully set to continue.
Secondly, the dividend is well covered at 1.4 times EPS. This offers a large degree of comfort that the dividend is maintainable.
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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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