Top broker tips 230% upside for this ASX All Ords stock you've probably never heard of

Investors could find strong returns with this hidden ASX share.

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Key points

  • Credit Suisse has suggested that Pact shares could rise over 200%
  • The business is currently experiencing some disruptions, but better times could be ahead
  • Pact is expected to generate growth in FY24 and FY25

The All Ordinaries (ASX: XJO), or All Ords, stock Pact Group Holdings Ltd (ASX: PGH) could be a strong opportunity in 2023, according to the broker Credit Suisse.

Firstly, let's talk about what the business actually does.

Pact describes itself as a leader in the circular economy, with its packing, re-using and recycling solutions. It aims to create "smarter ways of reducing waste through reusing and recycling resources, therefore keeping them in circulation well into the future."

The re-use segment aims to eliminate single-use products. It offers a number of solutions including retailer garment hangers, fresh produce crates, steel drums, household wheelie bins and water tanks.

With its packing, it locally sources recycled materials for various categories like dairy, drinks, food, industrial, health and personal care.

Is the ASX All Ords stock an opportunity?

Over the past year, the Pact Group share price has dropped over 50%. That means it's now much cheaper than in 2022.

The broker Credit Suisse recently slapped an outperform rating on the business, with a price target of $3.70, according to the Australian Financial Review.

Outperform essentially suggests that the broker believes it's a buy.

A price target is where the broker thinks the share price will be in 12 months after the target was issued.

At the current Pact share price, that suggests the broker believes the ASX All Ords stock could rise by 235%.

Firstly, just remember that just because an expert says a share price is going to rise doesn't mean it's going to happen. It's just their opinion.

However, the fall of the Pact share price does present an exciting opportunity, if the recovery occurs. If a share price falls 50%, a recovery back to the former value is a rise of 100%. Credit Suisse is suggesting the price can recover back to September 2021 levels.

How is the business performing?

The latest result was the FY23 half-year result, which showed an 8% increase in revenue, while underlying earnings before interest and tax (EBIT) fell 8% to $75 million, though EBIT was higher than guidance.

The All Ords ASX stock is working on "cost recovery and removing costs" in the business.

However, the materials handling and pooling business was "significantly impacted by a downturn and destocking in the US and Europe garment retail sector, in addition to reduced demand from China because of COVID lockdowns." Volume in the pooling business was impacted by "adverse weather conditions impacting growing regions in Australia and New Zealand."

But, it did say that it's expecting an improvement in the materials handling and pooling segment, with its Sulo bins business expected to report growth on the back of "significant local council contract wins." The pooling business is expecting a recovery with a return to stable weather and growing conditions.

While debt is higher than the company would like, it decided not to pay a dividend so that it could reduce debt.

FY23 underlying EBIT is expected to be ahead of FY22's underlying EBIT.

Pact share price valuation

According to Commsec, the business is expected to generate 16.1 cents of earnings per share (EPS). This would put the ASX All Ords stock at just 7 times FY23's estimated earnings.

Commsec numbers suggest that the business could then generate 19.4 cents of EPS in FY24 and 19.8 cents of EPS in FY25. So, if those projections are correct, it's on a very low forward price/earnings (P/E) ratio.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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