Amcor Limited (ASX: AMC) is a global packaging business with a market capitalisation of $17 billion.
Amcor has been a solid performer for shareholders and has achieved a total return of 112.5% over the last five years. There is a good chance that Amcor can deliver a solid performance over the next few years as well.
Amcor generates revenue from Australia, Asia, Europe, South America, North America, Africa and the Middle East – essentially the whole world. Globalisation has changed the market for a lot of companies and it has created the potential for Amcor's packaging to be used around the world.
It supplies a broad range of rigid and flexible packaging products in the food, beverage, healthcare, home and personal care industries. Amcor reports the rigid plastics and flexible packaging segments separately in its reports.
Its flexible segment had a solid year in FY16, it grew revenue by 4.5% and underlying profit before interest and tax (PBIT) by 6%. It also grew its sales margin by 0.2% to 12.5% and increased its operating cash flow by 7.2%.These are all encouraging numbers.
Management is expecting a strong performance from this segment in FY17 thanks to modest organic growth, a full year's earnings contribution from the Alusa business, modest growth from other acquired businesses, and restructuring benefits.
The rigid plastics segment also had a good FY16. It only grew revenue by 1.2%, but managed to grow underlying PBIT by 9.7% to US$352.5 million.
The outlook for the rigid plastics isn't quite as good. It's expecting a negative impact of around US$40 million relating to Venezuela. But other than that, the rest of the segment is expected to achieve solid growth.
Although Amcor has been growing profits, it has also been growing its net debt. In FY16 its net debt (in US dollars) grew by 33% to $3.2 billion, however its interest cover remained at 8.4x.
Debt doesn't necessarily mean a stock should be ruled out, but increasing interest rates could cause a problem in the future.
Amcor has grown its dividend every year since 2010, it has almost doubled from AU$0.295c to AU$0.553. Not many businesses can boast that level of growth in six years.
Time to buy?
Amcor has been a pretty solid business for shareholders. It's currently trading at 19.6x FY17's estimated earnings and has a dividend yield of 3.71%.
I think Amcor would be a decent addition to an investor's portfolio looking for some global diversification, but I don't like its growing debt pile.
For international diversification I'd rather buy a company like Ansell Limited (ASX: ANN) or Sonic Healthcare Limited (ASX:SHL).
