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Ord Minnett Research Insight: Amcor (AMC)

Amcor delivered a strong first-half FY21 result, with an underlying net profit of US$522m, 2.2% above Ord Minnett’s US$511m forecast. The company achieved constant-currency EPS growth of 16%, versus our estimate of 8.1% growth, while reported EPS was 2.5% ahead of our projection. A quarterly dividend of US11.75c per share was declared.

This was a solid outcome and reinforced our view that the Bemis integration has gone well to date. Management now expects cost benefits to come in at the top end of the previously provided guidance range of US$50–70m deal in FY21. The team also noted increasing confidence in achieving the full US$180m target on a run-rate basis by the end of FY21.

Operating cash flow in the half of US$442m was well ahead of the US$342m achieved in the same period last year, despite the unfavourable timing of US$50m in cash tax payments in the US. The improvement stemmed from higher operating earnings, and lower transaction and integration costs. Adjusted free cash flow, according to Amcor’s disclosure, declined in the period due to the above-mentioned tax payment. Importantly, for FY21 Amcor expects adjusted free cash flow before dividends to land at the top end of the US$1.0–1.1bn guidance range.

FY21 EPS growth guidance was updated from 7–12% to 10–14% and a US$200m share buyback was announced. We have increased our EPS forecasts by an average of 1.4% over FY21–23. We see potential upside to our estimates and market expectations from the opportunity for Amcor to capture market share and margin accretion over the next five years as it responds to the sustainable packaging needs of fast-moving consumer goods companies.

Amcor remains our key preference in the packaging sector. We believe the stock offers exposure to a highly defensive earnings stream that should grow largely independently of industrial or business cycles. The integration of Bemis has tracked well to date and we are impressed that the flexibles division has been able to achieve solid organic earnings growth despite the significant merger. We maintain our Accumulate recommendation with a $17.00 target price.