(BFM Bourse) – Deutsche Bank relaunched its watch on the glass packaging specialist on Tuesday and recommended buying its action. The establishment particularly praises its ability to withstand the economic cycle thanks to its exposure to premium segments, such as wine and spirits.
In the event of economic uncertainty, high-end positioning remains a benchmark. In all sectors. This is one of the reasons why Deutsche Bank is optimistic about the development of Verallia shares. The German bank thus resumed its coverage of the share for purchase on Tuesday with a target price of 48 euros, which gives a potential of 35% compared to the current price.
This positive opinion allows Verallia to gain 1.5% to 35.56 euros around 10:20 in a flat market, with the SBF 120 nibbling 0.03%.
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An estimated market share of around 20%
The market for glass packaging currently remains highly consolidated. Quite simply because it poses significant barriers to entry, with high fixed costs, significant investment and maintenance, with furnaces running seven days a week, 24 hours a day. Thus, according to Deutsche Bank, the first three players have 75% of the market share, Verallia’s share of around 20%.
Above all, the tricolor group has an asset in this period of economic slowdown: its positioning. Deutsche Bank says its US analysts have conducted a thorough review of the glass packaging market during recessions. In 2009 this market declined by 3% and then by 5% in 2010. These declines were driven by beverages and beer as opposed to liqueurs, wine and food.
But “with greater exposure to high-end products such as wine (46%) and spirits (11%), we believe Verallia should weather the storm better than its peers (its competitors, editor’s note),” explains Deutsche Bank.
This important positioning within premium products is explained by Verallia’s strong presence in countries such as France, Portugal, Italy and Spain. “This has been established through long-standing relationships with customers in the champagne and cognac industry (such as LVMH and Pernod-Ricard), as well as offering a wide range of differentiated products, with solutions for ‘personal packaging’,” adds the German bank.
This presence in premium products was strengthened by last year’s acquisition of Allied Glass in the UK. This Leeds-based group, with a turnover of more than €170 million by 2022, focuses on packaging for spirits such as scotch, whiskey and gin.
Margins must grow
This is not the only factor that makes Deutsche Bank recommend the stock for purchase.
The establishment appreciates the company’s financial performance, which has seen like-for-like growth of 8% per year on average over the year 2016-2022, compared to 2% for the glass packaging market as a whole. Its adjusted gross operating margin (Ebitda) rose from 22.5% in 2018 to 25.8% last year. Contrary to the analyst consensus, which predicts a deterioration of this margin this year, Deutsche Bank sees Verallia, on the contrary, increasing this profitability indicator by 40 basis points (or 0.4%).
“Even between 2021 and 2022, when energy consumption skyrocketed, the company still managed to grow its gross profit and Ebitda margin, both on a reported and adjusted basis,” Deutsche Bank points out. . In the medium term, the German bank estimates that the company can achieve an adjusted Ebitda margin of between 28% and 30%. This is due to both its cost discipline and its strategy of price increases above inflation.
Verallia should also generate cash, Deutsche Bank expects an operating cash flow of more than 2.5 billion euros cumulatively over three years. This should allow the company to finance its investments without problems, while reducing its debt and returning cash to its shareholders.
In addition, Deutsche Bank considers Verallia to be an ESG leader (environmental, social, governance, i.e. extra-financial criteria that are increasingly important in the eyes of investors) and appreciates its roadmap for reducing its emissions. carbon dioxide, using 46% in 2030 compared to 2019, before achieving CO2 neutrality in 2050.
Julien Marion – ©2023 BFM Bourse
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