Result Webast, page-15

"don’t think we’ll be seeing many companies come out with guidance this August, let alone 5-10% eps growth (just like clockwork for amcor though...)"


At first, I didn't know what you were talking about because I hadn't seen anything lodged on the ASX website, but then, thanks to your prompt, I found the results on the Amcor website.

I haven't had a look at the accounts in any detail yet, but the one number that I did notice during my casual glance was that constant currency EPS for the full-year was up 12.9%; I think that figure was running at around 10% for the first half.

So growth actually accelerated in the second half... despite the not-so-insignificant matter of a global pandemic doing the rounds!

And I don't think that second-half acceleration was because of lower prices for raw materials; lower prices for petroleum-based feedstocks would have taken time to feed through the inbound supply chain, and so this benefit is still to fully accrue in the current financial year.

And I also see that the Bemis integration and synergies are running "well ahead of expectations"

So I think that 5-10% eps growth for FY2021 is such a low-ball estimate as to be almost meaningless.

I reckon at least 12% growth is a shoe-in, so around FY201 EPS of US72c (which, conveniently for easy maths, is A$1.00/share).

That puts the stock on a prospective P/E multiple of less than 16x, which is a discount to the average multiple for the broader market (which I saw some research the other day estimated as being around 19x... and that figure is almost certainly predicated on a denominator that is cum-downgrade).

For many reasons which I'll omit in the interests of brevity, AMC is definitely a premium-to-market quality company, so I think a 20x P/E multiple is perfectly reasonable.

That implies a $20 target price, in my mind.


By way of triangulation, the company will generate US$1.1bn in Free Cash Flow this year, which corresponds to a 6.6% FCF Yield on the current US$16.6bn Market Cap.

I haven't checked my spreadsheet where I monitor this kind of thing, but relative to the yields on risk-free assets, that would most certainly be an all-time high.

At my $20 target price, the FCF yield is still over 5%, and the spread over bond yields is still very close to the very upper end of the range. This justifies an even higher target price when assessing the valuation on a FCF Yield methodology.

At 4% FCF yield - which is not way out of the realms of possibility - a $26 target price arises.

Finally, this is my all-time favourite picture ever to be found in a company presentation:
The Amcor Shareholder Value Creation Model:




Not only is it a simple and clear concept which is presented in a well-articulated articulated manner which makes it easy for even novice investors to understand, but there is great transparency in the way they always audit the company's performance against that shareholder value creation template.

This year they increase shareholder value by 17%, the difference being the Acquisition component, which was 9% higher, attributable to Bemis.

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