Investing really doesn’t need to be exciting to pay off. Amcor Limited (ASX: AMC) is a case in point.
With a market cap of nearly $17 billion, Amcor is a stable large-cap company which forms part of the S&P ASX 20. The company produces rigid and flexible packaging and describes itself as “a global leader in developing and producing high-quality, responsible packaging for a variety of food, beverage, pharmaceutical, medical device, home, and personal care and other products.”
Amcor released its 2019 half-year results today. For the period Amcor grew revenue 1.1% to US$4.55 billion and earnings per share dropped 0.4% to US$28.4 million. However, on a constant currency basis revenue grew 4.3% and EPS grew 3.4%. Amcor has also secured a new multiyear partnership making coffee pods for Nespresso.
Amcor announced an all-stock transaction with Bemis Company Inc (NYSE: BMS) on 6 August 2018. In an update on 25 January 2019, Amcor announced that all of the integration planning and antitrust clearances were proceeding within their expected timelines, other than in the United States of America (USA). As a result of the partial USA government shutdown, the deal is expected to close in the fourth quarter of FY19. Bemis is the top dog in the USA flexible plastics packaging market and earns 70% of its revenue within the USA. This helps to significantly strengthen Amcor’s business in the USA.
Packaging may not seem that innovative, however, Amcor is investing in research and development to ensure that it can offer the best products possible. The company’s latest innovation “Genesis” is an all-polyethylene (PE) laminate that the company says provides clarity, gloss, and stiffness comparable to traditional packaging. This delivers brands and retailers an in-store recyclable alternative for the first time.
According to TechNavio, there will be an estimated 4% CAGR in PET packaging, through to 2023. Amcor stands to benefit from this, as a large player in the market. In 2018 the company pledged to ensure that all of its packaging was either recyclable or reusable, by 2025. Amcor also committed to significantly increasing its use of recycled materials.
Amcor has been the subject of some heavy short selling – partly due to its need for emerging market growth in places such as China. Should the stock receive positive news, there could be a bounce in the share price. Amcor currently trades on a P/E ratio of 16.5x earnings, with an unfranked dividend yield of 4.4%.
A number of commentators are backing companies with exposure to overseas markets. Amcor is one of those companies. With overseas earnings exposure and the likely increasing spread between USA and Australian interest rates, the company has the potential to benefit from a lower Australian dollar. According to FNArena, the 2019 consensus analyst share price movement is 14% up. I agree that Amcor should be able to outperform the market in 2019 and beyond, once capital growth and dividends are factored in.
The Amcor share price closed 1.89% higher today at $14.56, an almost 10% year-to-date gain.
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Motley Fool contributor Lloyd Prout has no position in any of the stocks mentioned and expresses his own opinion. 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 Scott Phillips.