Morningstar | Australian Beverage Volumes Supportive of Orora’s 2019 2H But Shares Remain Expensive
Year-to-date Australian beverage market volumes have been stronger than we’d anticipated. While this provides support to no-moat Orora’s second-half fiscal 2019 earnings, the stronger observed market volumes have a largely immaterial earnings impact given beverages constitute only roughly one quarter of the Australasia segment’s revenues. We maintain our full-year fiscal 2019 EBIT forecast of AUD 360 million. Our long-term expectations for beverage volumes also remain unchanged. We continue to expect greater health awareness to drive declining per capita volumes in wine, beer, and carbonated soft drinks, or CSD, in the range of negative 1% to negative 3% annually over the coming decade. Orora continues to appear expensive in our view, last trading at an approximate 30% premium to our unchanged fair value estimate of AUD 2.50 per share.CSD volumes are tracking our full-year expectations, having declined 1.4% in the first nine months of fiscal 2019, according to GlobalData. But resilience was observed in beer and wine market volumes, which are performing slightly ahead of our full-year expectations over the same period. Volumes grew at 0.9% and 2.4%, respectively, over the first nine months of fiscal 2019 with year-to-date volumes therefore tracking ahead of our full-year expectations for relatively flat beer volumes and growth in wine volumes of 0.4%. But any earnings impact will be largely immaterial. We estimate the strong market could deliver an incremental AUD 8 million in revenue and roughly AUD 1 million EBIT for Orora in fiscal 2019. Further, with the performance of individual brands unavailable in quarterly data, the potential for greater than expected market share loss by Orora’s beverage customers could offset any earnings upside from strong market volumes. Our full-year segment EBIT forecast of AUD 240 million is unchanged.
In North America, Orora continues to focus on the integration of recent acquisitions. Integration of the recent Bronco and Pollock acquisitions continue to track management’s expectations. After paring back our expectation for the North American segment following the soft first-half result, we continue to forecast full-year fiscal 2019 segment EBIT of AUD 137 million.
Orora is engaged in providing a range of packaging solutions. Co.'s operating segments include: Orora Australasia, which focuses on the manufacture of fibre and beverage packaging products within Australia and New Zealand, and its manufactured products include glass bottles, beverage cans, wines closures, corrugated boxes, cartons and sacks, and recycled paper; and Orora North America, which primarily located in North America, is engaged in purchasing, warehousing, selling and delivering a range of packaging and other related materials, and its business also includes integrated corrugated sheet and box manufacturing and equipment sales capabilities.
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