Amcor (AMC) This morning, packaging company Amcor (AMC) announced their results for first half 2023, which were in-line with upgraded guidance given in early November, another consistent result from this very consistent company founded in Melbourne during the 1860s.

Key Points:

  • Profits: Up +6% to a record US$548 million, earnings per share growth slightly stronger at +8% due to share buybacks. Across AMC’s global businesses, flexible packaging continues to do the heavy lifting, with AMC benefiting from increased sales in higher margin pet food and healthcare (see below). Rigids profits were ahead of our expectations, reflecting shifts higher margins specialty PET bottles in the USA and strong volumes in Latin America.
  • Inflation: AMC has managed inflation well as expected, with contracts structured to automatically pass through US$670 million in increases in resin, plastic films and aluminium over the half. On the call management said that in 2023 raw material inflation was declining.
  • Getting out of Russia: A very pleasant surprise, in August AMC warned of a US$200M charge to exit its Russian operations (three plastics plants, 1 in St Petersburg & 2 in Novgorod 900 employees), with other Western companies such as McDonalds taking a charge of US$1.2 billion to we were pessimistic as to what the exit costs may be for AMC. AMC managed to sell these plants for US$430 million to a Russian private equity firm, an outcome that was significantly above managements expectations. $100M of the proceeds will be used to increase the buy-back, with the residual used to buy a medical device packaging company in China and a specialist coffee pod and pet food packaging plant in the Czech Republic.
  • Balance Sheet: Gearing below 35-40% target range at 31%, though this decreased in January after some asset sales which were done at a premium to book value. RGN’s average interest cost is 3.2% that, largely hedged for the next five years. No debt maturities till late 2024.
  • Rewarding Shareholders Part 1: Half year dividend A$0.367 cents per share, up +11.5% on 2022.
  • Rewarding Shareholders Part 2: AMC was a bit parsimonious with their on-market share buy-back in 1H FY23 only purchasing $40 million out of the projected $400 million, due to concerns about inflation and getting out of Russia. These concerns have abated, the buy-back is being increased by US$100M. US$460 million worth of shares will now be bought back June 23, partly funded by the unexpectedly high proceeds from the sale of Russian assets. This is the 5th consecutive year AMC have shrunk the outstanding shares.
  • Why is the stock off? On the call management said that demand was slower in the month of December due to plant shutdowns and were a little cautious on the outlook. Executing the buy-back will put upward pressure on AMC’s share price and given the defensive nature of AMC’s products we are not too concerned.
  • Guidance: Management has given 2023 profit guidance of between +7-11% with free cash flow of US$1.1 billion.

Amcor is held in several of the HNW portfolios and 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. 95% of AMC’s customer base is in consumer staples, such as packaging for meat, cheese, sauces and condiments, beverages, coffee, pet food, healthcare and personal care products, all of which have stable defensive characteristics. Amcor gives us exposure to a falling AUD and is an attractively priced world-class company that trades on a forward PE multiple of 15x with a yield of 4%, a discount to the broader ASX despite offering stable earnings during difficult times.

AMC finished down -3% to $16.70