Morningstar | Cost-Out Program Remains Key for Pact Group in Face of Soft Trading Conditions; FVE Unchanged
Weaker demand and input cost headwinds in the first half of fiscal 2019 led narrow-moat Pact Group to modestly downgrade full-year guidance. Pact now expects full-year fiscal 2019 EBITDA in the range of AUD 230 million to AUD 245 million. The midpoint of the updated range sits 2% below our full-year fiscal 2019 EBITDA forecast and 3% below Pact’s prior guidance provided in November. Pact Group also announced its first-half fiscal 2019 result and expects EBITDA of AUD 110 million. While a strong second half is required to meet our full-year forecast, Pact’s previously announced efficiency program could help it deliver. Our earnings estimates are unchanged and we continue to expect full-year EBITDA of AUD 242 million. Our fair value estimate of AUD 4.90 per share is also unchanged. We continue to see value in Pact Group with shares trading at an approximate 27% discount to fair value.Pact previously flagged a targeted AUD 50 million in annual cost-savings from the rationalisation of its Australian manufacturing network. While we don’t include any benefits from the program in our fiscal 2019 estimates, Pact Group asserts benefits will begin to flow in the second half of fiscal 2019 and lead to a skew in earnings to the second half of the year. Therefore, cost-out will be key for Pact Group to deliver EBITDA near our fiscal 2019 forecast, which now rests toward the top of management’s revised guidance range. Our current expectation is for program benefits to accrue gradually over the fiscal 2020--fiscal 2024 period but anticipate greater detail from Pact Group on timing and other specifics of the efficiency program when it reports its first-half result on Feb. 20.
Pact Group Holdings is provider of specialty packaging and manufacturing solutions in Australasia. Co. converts plastic resin and steel into rigid packaging and other products that service customers in different sectors including: food and beverage, personal care, household consumer, industrial and chemical, and materials handling and infrastructure. Co. also provides a range of services including outsourced manufacturing, filling and packing and a range of sustainability, recycling and environmental services to assist customers in reducing the environmental impact of their product packaging and related processes.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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