Saverglass

ACQUISITION AND CAPITAL RAISE

Need To Know

• Retail entitlement offer of 1 for 2.55 ORA shares at $2.70 per share.
• Offer closes at 5pm (AEST) Monday 25 September 2023.
• Proceeds applied to acquire Saverglass for A$2,156m.

Summary

The Retail Entitlement Offer is aiming to raise approximately $895m as part of the proceeds for the acquisition of Saverglass SAS (Saverglass), a leading global manufacturer of high-end glass bottles for the wine and luxury spirits industries.

An Institutional Offer is seeking to raise $450m via a fully underwritten placement also at $2.70 per share.

The Offer price is a 21.3% discount to the last closing price ($3.43 on 25 August) adjusted for the 9cps dividend.

ORA will use debt funding of $875m to complete the financing of the acquisition. The company’s pro forma leverage of 2.5x FY23 underlying EBITDA is within its target range of 2.0-2.5x.

The enterprise value of €1,290m (A$2,156m) represents a multiple of 7.7x adjusted EBITDA of Saverglass for the 12 months to 30 June 2023, excluding synergies of A$15m. The acquisition is expected to be mid-single digit EPS accretive in its first full year of ownership, including synergies. On a pro forma basis, ORA’s underlying FY23 EBITDA would be approximately $749m, 69% higher than the actual reported amount.

ORA said Saverglass would become the centrepiece of its global glass business unit. Manufacturing premium and ultra-premium glass bottles, Saverglass has manufacturing operations in Europe, Mexico and UAE and retains the rights to bottle designs and moulds. A strong trend in premiumisation in spirits and wine is benefitting Saverglass which has recently invested in further capacity in North America.

The Retail Offer represents a good opportunity for existing investors to participate in the capital raising by acquiring shares at a discount to the current market price at the same price as the institutional offering and to avoid the dilutionary impact of the offer. Consider participating in the Retail Offer provided this is in line with individual investor objectives.

Investment View

This is a large investment for ORA to undertake. The equity raising will add approximately 498m new shares equivalent to 59% of ORA’s shares on issue.

The multiple being paid is broadly in-line with other global peers and also in-line with comparable transactions although there are few with which to compare.

Saverglass itself appears to be a good business which has been acquired three times by Private Equity groups. ORA’s rationale for acquiring Saverglass is to create a ‘third platform for growth’.

ORA’s already large presence in North America will be an opportunity to extend Saverglass’ products and expertise into the American whiskey and tequila industries.

On completion, ORA’s EBIT split will be approximately 68% corrugated fibre and paper-based packaging and 34% beverage on a pro forma FY23 basis of A$487m. Geographically, it will be 44% North America, 33% APAC and 23% Europe.

We note that the Institutional equity portion of the raise is half that of the Retail portion which is unusual. Together with the large discount, it may indicate a less than enthusiastic response from ORA’s existing institutional shareholders. Despite this, the discount to the last close price is large enough to be attractive to existing shareholders given the implied FY25 PER is around 10.7x assuming ORA achieves its targets.

We rate ORA a Hold.

Key Risk

The large size of the deal is the main risk for ORA shareholders. The acquisition expands the group’s global and currency exposures as well as its operating and regulatory exposures in different economies.

Saverglass introduces ORA to a new segment of the glass packaging industry that it will rely on the expertise of the existing management to maintain and grow.