Amcor increases Asian exposure with Chinese acquisition

The recent purchase has strengthened Amcor's market share in the growing Chinese market.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published July 15, 2013 1:18 pm AEST

Amcor (ASX: AMC) is the world's largest packaging company with annual turnover in excess of $12 billion and diversified exposure to developed and emerging economies. Earlier this month, the company announced the purchase of Chinese flexible packaging business Jiangsu Shendra Group for $62 million. The acquisition continues Amcor's strategy of using cashflow from operations in developed nations to expand into developing nations.

The company operates globally, with sales spread between North America (30%), Western Europe (26%), Australia and New Zealand (22%) and Emerging Markets (20%) such as China, Thailand, Indonesia, India and Singapore. Amcor has a strong position in the Chinese packaging business. Current annual revenue is over $400 million from nine plants covering all major regions.

The Jiangsu Shendra Group acquisition appears to be a good fit for Amcor in China, as it services the same industries as the existing business and the two acquired plants are in close proximity to the existing plant in Jiangsu, Eastern China. Amcor believes the purchase will ensure the company becomes a market leader in Eastern China, an area which accounts for around 40% of China's GDP. Jiangsu Shendra sales of $78 million are expected to increase Chinese revenue by around 7%, with additional benefits to be realised through cost sharing between the businesses.

Brokers have been generally impressed by the acquisition, with Morningstar noting that the purchase expands its geographic diversification, giving the company further competitive advantage over its peers.

The company is also set to benefit from over 55% of earnings coming from North America and Europe, indicating that it will benefit from a falling Australian dollar.

Foolish takeaway

Amcor is a diversified packaging company with operations in many developed and emerging economies. The recent acquisition of a Chinese packaging company appears to be a good fit and will complement existing assets. With a falling Australian dollar and a dividend yield of 3.6%, the company is well positioned to perform strongly in the medium term.

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Motley Fool contributor Andrew Mudie does not own shares of any companies mentioned.

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