At these prices, I have decided to take the plunge for a small...

At these prices, I have decided to take the plunge for a small position. Not sure why the stock price has not responded more, but I am happy to share some of my research and thoughts.

The sector seems to have a small tailwind, but still risk around Covid-19's impacts. Flexibles, health care, and other packaging is growing at around 5-6% CAGR, and more so in APAC which is less represented by Amcor. The sector seems quite fragmented actually, so there could be opportunities for further consolidation whereby cheaper producers like Amcor will take more market share - but with prices and debt quite high, seems beyond Bemis there aren't many opportunities out there for Amcor. If management disagreed, they'd probably not be doing these share buy backs right now.

I personally really like the fundamentals of Amcor, backed by a really good management team that understands capital allocation and shareholder return! They throw off so much free cash flow, have entrenched market share, and a really broad customer base (Pepsi being the biggest at <10% of revenue). Their total shareholder return is really impressive - generally under promising and over delivering in the +12% range which seems like a fair risk adjusted return to me.

My thoughts on what may be holding back at the moment is the risk with the Bemis acquisition (more debt, uncertain synergies, potential for organic growth / revenue / topline to drop off). Shorters back in March flagged this, but the most recent reports seem to shrug it off with better than expected results. The other thing is simply the valuation. I undertook a reverse discounted cash flow analysis and current stock price has 12.5% growth factored in already; and the current PE is quite high due to share dilution / Bemis acquisition, though the forward PE for FY21 seems more reasonable at around 17. If they meet those earning expectations (US$1.1bn according to the average of 9 analysts), then the fair price could be around $21 but that won't be until after the 30 June 2021 earnings are published.