Company Reports

Narrow-moat Amcor provided updated earnings guidance following a stronger-than-expected fiscal third quarter and an improved outlook for the remainder of fiscal 2024. We raise our fair value estimate by 5% to AUD 17.80/USD 11.50 from AUD 17/USD 11 and our adjusted earnings per share estimate to USD 0.69 from USD 0.67 for fiscal 2024, at the bottom end of updated guidance. Our improved near-term forecast is driven by a small uplift in operating margin from recent cost-saving and restructuring programs and a sooner-than-expected recovery in volume. We now forecast a low-single-digit increase in volume from fiscal 2025 versus a low-single-digit decline previously. Beyond this, we maintain our volume and price growth assumptions.

Amcor’s strategy revolves around strategic acquisitions and divestments, market share growth, and investment in capacity and capabilities. We see several merits to its strategy, which has led to organic and acquisitive growth and average annual returns on invested capital of 17% over the five years to fiscal 2023, comparing favorably against a weighted average cost of capital of 8%.

Amcor’s strategy revolves around strategic acquisitions and divestments, market share growth, and investment in capacity and capabilities. We see several merits to its strategy that has led to organic and acquisitive growth, and average annual returns on invested capital of 17% over the five years to fiscal 2023, comparing favorably against a weighted average cost of capital of 8%.

We lower our fair value estimate for Amcor by 4% to AUD 17. The driver of the revision to our fair value estimate is our revised sales volume estimates. We have reassessed our view on volumes in the developed market segments of North America, Western Europe, Australia, and New Zealand, and are tapering this back slightly to align with our longer-term population growth expectations. Within developed markets—about 75% of sales—we expect most revenue growth from a mix shift toward premium products and that per capita consumption remains stable over the forecast period. This drives a low-single-digit decline in our midcycle volumes from our prior forecast. We forecast 10-year group sales and EBITDA compound annual growth rates of 2% and 3%, respectively.

Amcor’s strategy revolves around strategic acquisitions and divestments, market share growth, and investment in capacity and capabilities. We see several merits to its strategy that has led to organic and acquisitive growth, and average annual returns on invested capital of 12% over fiscal years 2019-23, comparing favorably against WACC of 8%.

We modestly raise our fair value estimate for narrow moat Amcor by 2% to AUD 17.80 (USD 11.60), on the time value of money. In line with our expectations, first-half fiscal 2024 adjusted EBIT of USD 709 million was 6% lower than the previous corresponding period on a constant comparable currency basis. The key drag on earnings was a 9% decline in volumes. About half of this was due to customer destocking of excess inventory. The remainder was due to weaker end-customer demand as household budgets became stretched by high-interest rates. As a result, households are spending less on discretionary goods and switching to lower-cost or bulk items, which generally have less packaging. Despite this, we expect a stronger second half as destocking abates. Our fiscal 2024 forecast assumes volumes decline mid-single digits, with our earnings forecasts unchanged.

Amcor’s strategy revolves around strategic acquisitions and divestments, market share growth, and investment in capacity and capabilities. We see several merits to its strategy that has led to organic and acquisitive growth, and average annual returns on invested capital of 12% over fiscal years 2019-23, comparing favorably against WACC of 8%.