Yes, they can
RESULTS ANALYSIS
Need To Know
- Resilient North American result in uncertain times.
- Can volumes offsetting glass slide.
- Cautious management outlook possibly undersells the story.
Investment Implications
Result Overview:
Group EBIT $321m +12%, consensus $309m
Underlying net profit $203m +8.5%, consensus $196m
EPS 24.1cps +11.1%, consensus 23.0cps
DPS 17.5cps final, in-line with consensus
FY23 result. North American EBIT of $112.6m was up 15% in local currency terms thanks to a lift in margin to 5.1%. This was a ~4% beat to consensus at $108m. Distribution and operating efficiency initiatives offset weaker volumes. This pushed operating cash flow up 33% helped by lower working capital. The reported EBIT of A$167.2m included a $13.6m foreign exchange translation impact.
Australasian earnings were in-line with consensus as growth in cans (+10%) accounted for most of the volume growth of 2.7%. Price increases enabled ORA to get back to growth in 2H23 which boosted EBIT by 8.5% on the pcp. Higher investment in working capital crunched cash conversion to just 54% reflecting glass inventory build ahead of a furnace rebuild. Extra raw materials were also required to support the new cans line at Dandenong. More capex is headed to Australia in FY24 in cans and the furnace rebuild plus an oxygen plant at Gawler.
ORA is a big gas and electricity user, so management of price volatility has been crucial through contracts and power purchase agreements. The company has nailed down most of its requirements through to 2026.
Outlook. ORA left its FY24 guidance vague other than to say ‘earnings are expected to be higher’ subject to uncertain economic conditions. Volume softness is weighing on North American earnings which is focusing on cost management for margin improvement.
It’s all about growth in cans in Australasia offsetting lower glass growth from lower commercial wine volumes.
Investment View
About three-quarters of ORA’s revenue is in North America, so a lower AUD would nominally be beneficial to translated earnings.
The company appears to be shying away from any positive outlook commentary even though it is performing steadily in an ‘uncertain economy’.There is not much to get excited about here, but neither is there cause for concern. Our Hold rating stands.
Stock Overview
Share Price
Company Overview
Orora is a global packaging manufacturer, distributor and visual communication solutions company.
Disclaimers and Disclosures
Issuer
The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").
Reliance
Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.
General Advice
Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs.
General Disclosures
This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au.
Currency of Research
The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.
Access and Use
Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.
Equities Research Methodology
Please click here for information about MST equities research methodology.
Related Reports
Now for the hard part
FY23 result. An extraordinary year for PLS in terms of the cash and earnings generated by the combination of higher production and elevated commodity prices.
Milling about
A record year of cash earnings has prompted the Board to extend the buyback and lift the final dividend for shareholders.
Backyard cookup
Mineral Resources has effectively swapped out the downstream China risk to develop lithium battery chemicals with a more domestic pathway forward. This is likely to take longer and perhaps may rely on government support.