##{"id":58729,"date":"2011-08-24T10:06:09","date_gmt":"2011-08-24T00:06:09","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/24\/amcor-offers-growth-synergies-and-capital-management\/"},"modified":"2011-08-24T10:06:09","modified_gmt":"2011-08-24T00:06:09","slug":"amcor-offers-growth-synergies-and-capital-management","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/24\/amcor-offers-growth-synergies-and-capital-management\/","title":{"rendered":"Amcor Offers Growth, Synergies And Capital Management"},"content":{"rendered":"

\n\t– Amcor<\/span> result better than consensus expectations
\n\t– Synergies ahead of schedule, continue to drive earnings
\n\t– Buyback announced, more capital management expected
\n\t– Brokers now unanimous with Buy ratings<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tConsensus expectations for full year earnings from packaging group Amcor<\/span> ((AMC)) were for a net profit of around $539 million, so the result of $570 million was clearly better than expected. <\/p>\n

\n\tAs UBS points out, the result was driven by the earlier delivery of synergies related to the Alcan<\/span> acquisition. RBS<\/span> Australia notes Amcor<\/span> generated synergy benefits of $142 million FY11<\/span>, which compared to a target for the year of $100-$120 million. This means Amcor<\/span> has achieved the bottom end of the synergy target range of $200-$250 million in total gains a year ahead of schedule.<\/p>\n

\n\tAs well, management has announced a $150 million share buyback, the capital management initiative also coming a year earlier than RBS<\/span> had anticipated. The buyback suggests to RBS<\/span> that management is confident in the earnings and operating outlook for Amcor<\/span>, while as Credit Suisse notes even allowing for the buyback the balance sheet remains in solid condition.<\/p>\n

\n\tFurther capital management initiatives are possible as BA Merrill Lynch estimates in FY13<\/span> Amcor<\/span> should generate free cash flow of more than $800 million. With target gearing of 45-50%, this offers significant scope for more capital returns in BA-ML's view.<\/p>\n

\n\tCiti<\/span> agrees, estimating Amcor<\/span> could announce capital management moves totaling $1.0-$1.5 billion over the next 2-3 years given increasingly strong cash flows.<\/p>\n

\n\tLooking forward, synergies from Alcan<\/span> should continue to be the key growth driver for Amcor<\/span>, with Credit Suisse remaining above management's guidance in terms of expected synergies in coming years. Risk is to the upside if management can execute properly, notes Credit Suisse.<\/p>\n

\n\tPost the profit result brokers have made relatively minor adjustments to earnings estimates. Citi<\/span> lifted estimates for FY12<\/span> slightly to account for the buyback but reduced forecasts in FY13<\/span> to factor in changed currency expectations.<\/p>\n

\n\tRBS<\/span> has gone the other way and trimmed its numbers by about 5% in FY12<\/span> given changed currency estimates, while UBS has also made minor cuts to its forecasts. Consensus earnings per share (EPS) estimates according to the FNArena<\/span> database stand at 53.8c<\/span> for FY12<\/span> and 63.1c<\/span> for FY13<\/span>, compared to a result of around 46c<\/span> for FY11<\/span>.<\/p>\n

\n\tThere has been one change in rating for Amcor<\/span> post the profit result, UBS upgrading to Buy from Neutral on valuation grounds. As UBS notes, at current levels Amcor<\/span> is trading at a discount to the Industrials sector despite a strong and visible earnings growth outlook and scope for additional capital management moves.<\/p>\n

\n\tThe upgrade brings UBS into line with the rest of the market, as the FNArena<\/span> database now shows a perfect eight-for-eight Buy ratings for Amcor<\/span>. As Credit Suisse notes, Amcor<\/span> should be able to continue to lift group earnings through acquired earnings, related synergies and capex<\/span> growth, even assuming little in the way of organic growth.<\/p>\n

\n\tThe consensus price target according to the database is $7.90, down slightly from $8.05 prior to the result. Price targets range from $7.50 to $8.50.<\/p>\n

\n\tOver the past year the stock has traded in a range of $5.87 to $7.43, the current share price implying upside of around 17% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"