Here’s why the Pact Group (ASX:PGH) share price is rising today

The Pact Group Holdings Ltd (ASX: PGH) share price is up by 1.55% to $2.62 per share today, after the packaging company outlined its FY20 results and gave a quick guidance for FY21 at its annual general meeting (AGM).

Financial highlights from the AGM

Pact Group says it delivered solid financial results in financial year 2020, considering the significant market disruption this year due to COVID-19. The company reported the following headline results for FY20:

• Revenue of $1.8 billion.

• Underlying net profit after tax (NPAT) of $81 million, up 5%.

• Earnings before interest, tax, depreciation and amortisation (EBITDA) of $302 million, up 1% on a comparable basis.

• Free cash flow generation of $71 million, up 81% on comparable basis.

• A reduction in net debt of $70 million and an improvement in leverage to 2.6x.

• The resumption of dividends, with the payment of a final dividend of 3 cents, franked to 65%.

What else did Pact Group say

Pact Group reported it once again made the Australian Financial Review and Boss Magazine’s Most Innovative List for the eighth consecutive year, where it ranked second on the Manufacturing and Consumer Goods list, and was a joint winner in a new category of Best Pandemic Pivot. 

The company advised it has made progress in executing its new ‘Vision to Lead the Circular Economy’ strategy announced in February – a strategy that aims to align Pact’s capabilities with industry needs. Pact says that the plastic packaging industry is changing rapidly, and that plastic sustainability is not just an environmental need, it has now become an economic necessity.

It pointed to the Australian Government’s recent commitment of $600 million to the ‘circular economy’ through the ‘Recycling Modernisation’ initiative as putting the company in a good position to execute its strategy of having 30% recycled content by 2025.

Pact also gave a brief guidance for FY21. It says that earnings for FY21 have remained resilient so far, and sales volumes to the United States have increased in the first quarter. It expects earnings before interest and tax (EBIT) for the half-year to be ahead of the prior comparative period. However, the company says the impact of COVID-19 remains uncertain, and a further update on FY21 trading will be provided at the company’s half year results in February 2021.

A bit about Pact Group’s business

Pact Group is the largest rigid plastic packaging manufacturer in Australia and New Zealand, with a growing footprint in Asia following the acquisition of the CSI and Graham Packaging businesses in early 2018. After executing more than 50 acquisitions in the last few years, it has managed to gain 35% of the Australian rigid plastics market. Privately held company Visy has the other 35%, and ASX-listed Pro-Pac Packaging Limited (ASX: PPG) takes a much smaller pie. 

Management has said in the past that (aside from encroaching competition) its biggest risk lies in the price of resin – a raw material which accounts for 50% of Pact’s costs in manufacturing plastics. Although the company adjusts its customer pricing every 90 days, residual risk remains when resin prices become volatile, and the re-setting period is unable not keep up with the move in its prices. 

How has the Pact share price performed in 2020?

The Pact share price has traded relatively flat in 2020, having lost 1.5% on a year-to-date basis. It went through a rough period in March when the share price dropped as low as $1.27 during the pandemic-induced market panic. It has since recovered to today’s price of $2.62. The Pact Group commands a market cap of $888 million. 

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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