Amcor (AMC):  Yesterday morning, the global packaging company gave a quarterly update, which came in below market expectations. We usually don’t comment on 3-month report releases as they are too volatile and can give a misleading picture, both positive and negative, but today’s share price move warrants a brief note. The HNW Equity Portfolio holds a 4% weight to AMC.

Key issues:

  • Mixed Quarter: Net sales for the quarter were marginally down (-1%), but this is to be expected since they divested out of 3 Russia plants in December last year, which accounted for around 4% of revenue. As discussed above, three months is a too small sample size to gauge the efficiency of a company.
  • Inflation Immune / Material Input Costs: Although sales were down marginally, Amcor has been able to pass on $750 million or 7% growth onto their customer to offset higher material input costs over the last nine months.
  • Stronger Dollar: Over the past year, the USD has strengthened 5% vs the EUR and 7.5% vs the AUD; this has hurt the translation of EUR-denominated earnings.
  • Buy-back: Amcor plan to buy back another US$500 million in shares before June on-market, with $200 million in shares have already been repurchased year-to-date.
  • Why is the stock off: The market did not like the full-year lower earning guidance which was primarily due to a strong USD diminishing the translation of profits made in Euro as well as some volume slippage in flexibles.
  • What does this mean for Australian investors? Not much. While the stronger USD is negative for American investors, it is positive for AMC’s Australian investors and one of the reasons we like the stock. While AMC shifted down guidance in USD, for Australian investors, earnings will be up +4% and dividends per share +10%.

Portfolio Strategy: Amcor is the largest global packaging company with operations in 43 countries. While packaging is not the most exciting of industries, Amcor exposes the portfolio to global growth in consumer and medical goods and manufacturer demands for increasingly sophisticated packaging. Since acquiring Alcan Packaging from Rio Tinto, AMC has made moves to consolidate the fragmented global packaging industry, improving profit margins while taking over 23 other competitors. Amcor gives us exposure to a falling AUD and is an attractively priced world-class company that trades on a forward PE multiple of 14x with a yield of 4.2%, a discount to the broader ASX, despite offering stable earnings during difficult times.

AMC fell -9.5% to $14.91 (03/05/2023) an overreaction on behalf of Australian investors not impacted by currency translation issues.