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Why the Pact Group share price was smashed today

One of the worst performers on the Australian share market on Tuesday has been the Pact Group Holdings Ltd (ASX: PGH) share price.

The packaging company’s shares crashed 9% lower in morning trade following the release of an announcement which revealed asset impairments and its half year expectations.

What did Pact Group announce?

This morning Pact Group announced that it has completed a review of the carrying value of its assets. Due to challenging trading conditions and a moderated long-term outlook for the company’s Australian businesses, it expects to recognise non-cash impairment charges in the range of $310 million to $340 million after tax in its half year accounts.

This was done to reflect the use of more conservative assumptions regarding growth and discount rates.

The charges comprise $90 million to $100 million for its Australian packaging assets and $220 million to $240 million for Goodwill in Australia.

In addition to this, the company released its preliminary unaudited results for the half year. Management advised that earnings before interest, tax, depreciation, amortisation and significant items (EBITDA) is expected to be approximately $110 million.

This will be a 9% decline on the prior corresponding period when its achieved EBITDA of $121 million.

Looking ahead, management expects EBITDA for the full year to be in the range of $230 million to $245 million. This compares to FY 2018 EBITDA of $237 million.

Though it did warn that this guidance could be impacted by uncertainty around the speed in which revenue and efficiency projects can be delivered and the rate with which input cost lags can be recovered.

Should you invest?

While Pact Group’s shares look reasonable value after this decline, I wouldn’t be in a rush to invest given the challenging conditions that it faces. I would suggest investors look at industry peers Orora Ltd (ASX: ORA) and Amcor Limited (ASX: AMC) instead.

Alternatively, these top shares could be even better options that those packaging companies.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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