Orora Limited (Orora, the Group, ASX: ORA) is global packaging manufacturer for the beverage industry, specialising in glass bottles, aluminium cans, and premium wine closures.
The Group was created in 2013 when Amcor demerged its Australasian fibre and beverage packaging operations and North American distribution business. Its shares were offered to the investing public at $1.40 per share.
Beverage packaging provides defensive growth
Orora is today a global beverage packaging business with a market leading position in Australasian Cans, a specialist capability in global packaging of premium and high-end spirit and wine bottles, and an integrated global glass production network. This concentrated focus on beverage packaging follows the acquisition of Saverglass in December 2023, a market-leading business focused on global luxury beverages through the manufacture of premium spirits and wine bottles
The Group maintains a strong balance sheet, has leadership positions in attractive markets based on long-term customer trading relationships, and a defensive growth exposure through Glass and Cans that provides earnings resilience.
Sale of North American packaging business
Orora has entered into a binding agreement to sell 100 percent of its North American packaging solutions business (Orora Packaging Solutions) for A$1.775 billion in cash. The sale is subject to customary terms and conditions such as regulatory approvals from applicable antitrust authorities, and completion is expected to occur in December 2024.
The divestment will simplify and streamline the Group’s operations. Orora now has a deliberate focus in Global Glass and Australasian Cans, where it holds the number one market position, with this market benefiting from the consumer preference shift to aluminium. The Group’s other specialty focus area is the premium, high-end wine, beer and spirits glass market.
Takeover interest from Private Equity
In August 2023, in response to media speculation, Orora advised that it had received and rejected an indicative takeover proposal from private equity firm, Lone Star, at $2.55 per share. The Orora Board, in quickly rejecting the proposal, described it as opportunistic and stated that the $2.55 offer price materially undervalues Orora. Interestingly, Lone Star was one of the underbidders for Saverglass, which was acquired by Orora in 2023.
Lone Star is a disciplined, value-driven investor, and their takeover interest at $2.55 per share implies that Orora shares are reasonably priced at present.
The Future
The sale of the North American packaging business for $1.8 billion has reduced the Group’s leverage and provides capacity to invest in organic growth opportunities and/or return capital to shareholders. $130 million of the sale proceeds will be used to further expand the Group’s Australasian Cans capacity by more than 30 percent. This investment will further cement Orora’s market dominance of the beverage sector that uses aluminium cans for its product packaging.
The balance of the proceeds will be applied to debt, providing the Group with considerable flexibility to optimise future shareholder returns. The Board’s intention is to distribute the capital that is surplus to the Group’s future organic growth opportunities to shareholders, in a tax efficient manner. The form and timing of any shareholder distribution will be disclosed in due course. The capital return will most likely be by way of a share buy-back or a pro-rata capital distribution. Such a capital management initiative should be a positive share price catalyst when announced.
In the meantime, challenges in global beverage markets persist with volume softness from the de-stocking cycle in global spirits reducing packaging demand at present. Orora expects an end to this soft demand sometime in the second half of FY25 as customer inventory levels normalise. Management have added that the current volume softness is being offset by cost management initiatives.
Indications are that FY25 earnings growth will be skewed to the second half of FY25, so this will require investor patience in the short-term. Looking to the medium-term, Orora’s resilient earnings should support shareholder value accretion as the Australasian Cans business segment continues to expand its market share and the strategy of becoming a specialty value-added beverage packaging player is successfully executed.
