Ardagh Metal Packaging: Pros and Cons (NYSE:AMBP)

Here at the Mare Tower, we have analyzed Ardagh Metal Packaging (NYSE:AMBP) twice already this year and we suggest that our followers check up on our previous publications:

Today, we are back to comment on the company’s Q3 results and its latest development. So far, our buy rating target has proven to be wrong; however, at this time, we still believe that AMBP stock price is being penalized too much. Starting with the positive comments, Ardagh Metal Packaging still offers:

1. A juicy dividend yield that is reaching 8%;
2. A new $200 million buyback plan that is approximately 6% of the company’s total market capitalization;
3. And a compelling valuation (based on a FCF yield as well as EV/EBITDA multiple). This is also supported by the recent Carl Icahn investment that recently entered with an 8% equity stake in the can producer Crown Holdings.

On the contrary, we should note the negative aspects:

1. The debt burden coupled with this raising interest rate environment will not pay any favor to the company;
2. Ardagh Metal Packaging’s shareholder structure, with Ardagh Group still holding more than 75% of the company;
3. The negative pricing delta: Ardagh Metal Packaging currently is not passing through raw material inflationary pressure;
4. Having recently analyzed Heineken, we are still projecting mid-single-digit volume growth for 2023;
5. Important to note is the poor management guidance and not the greatest investor relations section.

Q3 results

Despite the strong volume, the company missed almost every line in its P&L. Looking at the company’s segment highlights, the American region’s EBITDA reached $102 million, missing the consensus expectation that was forecasting $125 million. This was mainly due to higher input costs and EBITDA declined by 60 basis points on a quarterly basis. Regarding Europe’s EBITDA, the margin decrease was more pronounced. EBITDA was 50% less than the previous year’s end number and stood at $38 million, compared to an average consensus of $80 million. Again, results were impacted by raw material inflationary pressure and also by unfavorable FX development.

For this reason, 2022 EBITDA was further cut and now the management projects a range between $640 and $650 million from $710 million. 2022 shipments were further reduced from high-single-digit to mid-single digit and also CAPEX is going down by almost $200 million. We are not surprised to see a negative stock price reaction. However, Ardagh Metal Packaging acknowledged near-term reductions in surplus capacity and flexing its growth spend, which combined with other companies’ new actions will reestablish market balance.

Conclusion and Valuation

Here at the Lab, despite the negative comments and taking into account the latest company’s indication, we still believe in Ardagh Metal Packaging’s investment proposition. Therefore, we decide to lower our target price from $11 to $10 per share, valuing the entity with an EV/EBITDA at 10x in our forecast numbers for 2023. There is a strong margin of safety with the company yield (including buyback and dividend); however, we should include additional risks such as volume trend development and FX.