Amcor’s purchase of Alcan turned the company into a global player, and the difference between playing globally and being stuck in Australia’s two speed economy is becoming apparent. It gets four fifths of its revenue overseas, and is not heavily dependent on the US market. AMC has agreed to acquire the Australasian and Thai packaging group, Aperio Group for A$238m. Royal Bank of Scotland likes the acquisition, advising a buy and putting a target price of $7.80:
We believe this is a sensible acquisition at an attractive price. Further, we view this as evidence of management’s ability and commitment to deploy free cash to generate shareholder value. Importantly, we are encouraged to see that the acquisition sits firmly in line with management’s stated investment criteria and strategy and, despite a competitive bidding process, has been agreed at an attractive price.
We retain our Buy recommendation for AMC. In our view, this reinforces our core thesis by demonstrating the company’s ability to achieve growth while maintainng a defensive earnings stream. Given significant anticipated cash generation, we believe the company will be able to return cash shareholders while also exploring accretive acquisitions.
The stock is on a good dividend yield of over 5% and mid range forward earnings multiple of just under 13 times. But the real attraction is that it offers exposure to global operations rather than Australia’s two speed economy: Merrill, however, is arguing that the value is priced in:
We believe the company’s synergy success in Alcan and Ball Corp points to success in achieving these targets should the acquisition be allowed to proceed. Even post this, the price is not materially value accretive and we maintain our Neutral call. Implicit in this Neutral recommendation is a below consensus FY12 earnings forecasts (Europe volume softness, lag in raw material costs and spot currency) balanced with (1) the quality of the businesses and market positions, (2) still relatively defensive earnings profile and (3) prospects for increased capital management on top of an already healthy yield.
If they are right then it becomes a yield play. But what isn’t in the current gloomy market? And there is diversification on offer in the global operations.