Amcor is one of the world’s major plastics packaging companies, with market-leading positions across global Flexibles and Rigids packaging markets. Three-quarters of Amcor’s earnings are derived from the defensive household consumption categories (food, beverages, and healthcare) that are less sensitive to the fluctuations in the economic cycle so in the current volatile environment we see their defensive and stable end market exposures as attractive. The recent $9bn acquisition of US-listed rival Bemis provides superior scale and cost advantages meaning that their lower cost structure should enable them to compete and win market share and at better margins than smaller competitors. While their recent FY19 result fell just short of market expectations the highlights came from confirmed Bemis synergy targets while funds raised from Bemis anti-trust assets sales in Europe will now be redirected towards a US$500m share-buyback and this capital management has pleasingly come earlier than expected. The buyback highlights the group’s strong cash flows and management appearing to prioritise capital management over the further bolt-on acquisitions and this should be well received by the market. Pleasingly, the company has also provided earnings guidance of 5-10% growth next year and given the groups strong track record of meeting or exceeding synergy targets we see some potential further upside for cost savings and earnings. Over the past few months, trade-sensitive sectors and global earners such as Amcor have lagged but we feel the 15% pullback from their July highs is a great opportunity to Accumulate given recent guidance and supportive capital management that includes a 17.73c dividend that you will receive in buying shares today. We see Amcor as well-positioned to deliver constant reliable growth and see their strong cash flows supporting a high 4.8% dividend yield going forward.
