ASX:ORA
Orora Ltd
Investment Summary
The fund managers believe that Orora Ltd (ORA) presents a complex investment landscape, marked by recent volatility. Despite experiencing a 12% decline in October and a 19% drop in April, ORA's long-term potential remains compelling due to its strong balance sheet and material valuation upside. Recent events indicate that challenges are primarily cyclical, rather than structural, with management focusing on strategic divestitures, such as the sale of its US Packaging Distribution business, which enhances liquidity and positions ORA favorably for buybacks. While the market fixates on short-term earnings fluctuations, the fund managers express confidence in the long-term intrinsic value of the business, especially following a robust FY24 result and a 25% rally in August. They remain patient, citing that a significantly higher bid than the indicative $2.55 may arise if market conditions stabilize. They continue to monitor ORA as an improving quality investment, emphasizing prudent positioning until clearer evidence of turnaround emerges.
Commentary From The Managers
Blackwattle Investment Partners
31 Oct 2024
$2.41
- ORA was the largest negative contributor to performance, falling 12% in October.
- ORA is a diversified, global packaging business with key exposures to glass and aluminum can beverage manufacturing in Australia and France.
- ORA provided a trading update at its AGM in October, indicating that Saverglass still faces a challenging backdrop in the near term.
- This sentiment was echoed by recent updates from European competitors, noting weak yet stable demand.
- Blackwattle Investment Partners had previously identified ORA as an ‘improving quality’ business requiring patience, with attractive material valuation upside and a strong balance sheet.
- The market remains focused on short-term earnings rather than balancing this with long-term intrinsic value.
- Blackwattle Investment Partners views deep value investments as capable of rapid retracement, emphasizing patience to realize long-term valuation upside.
- Conviction in ORA's potential is bolstered by the sale of the US Packaging Distribution business, allowing for on-market buybacks.
- Notably, ORA trades below the $2.55 indicative bid from Lone Star, suggesting potential for further corporate attention if share prices remain stagnant.
Blackwattle Investment Partners
31 Aug 2024
$2.47
- Blackwattle Investment Partners continues to hold ORA due to its performance, being the largest positive contributor with a 25% rally.
- ORA operates as a diversified, global packaging business, with significant involvement in glass and aluminum can beverage manufacturing in Australia and France.
- The company recently rejected a non-binding bid from private equity, showing confidence in its strategic direction.
- Following the rejection, ORA reported a strong FY24 result along with a solid outlook for FY25.
- ORA announced its intention to divest its non-core US Packaging Distribution business, which was finalized in early September.
- Previously identified as an ‘improving quality’ business, ORA was noted for its potential upside and reasonable balance sheet, requiring patience for realization.
- As part of their engagement, Blackwattle Investment Partners identified the divestment of the US business as a key lever to enhance the company’s strength.
- The successful sale has paved the way for significant debt repayment and ongoing investments in high-return growth projects.
- There is an expectation of long-term upside for ORA, with the business well-positioned to execute its strategy effectively.
- A considerably higher bid than the $2.55 indicative offer would be necessary for any private equity acquisition interest to progress.
Blackwattle Investment Partners
30 Apr 2024
$2.19
- Orora was the largest negative contributor to performance during the month.
- ORA fell 19% in April due to a weak trading update leading into their investor site tours in France.
- ORA is a diversified, global packaging business with key exposures to glass and aluminum can beverage manufacturing in Australia and France.
- Despite the disappointing update, the majority of recent headwinds are believed to be cyclical rather than structural.
- The earnings turnaround is expected to take longer than previously anticipated, but there is material valuation upside.
- With a reasonable balance sheet, Blackwattle Investment Partners remains patient that this ‘improving quality’ stock will deliver over time.
- Position size is moderated to account for the risks associated with ‘improving quality’ investments.
- Improving quality opportunities can be highly rewarding, but they have a wider range of potential outcomes and forecast error is higher.
- Blackwattle Investment Partners continues to wait rather than increase the position at this point.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.