塑料包装：非周期性的缓解了成本逆风

1、23January2019Americas/United EquityResearchResearchAnalystsLarsKjellberg46 8 54507926 HYPERLINK mailto:lars.kjellberg VanessaCheung44 207 8882381 HYPERLINK mailto:vanessa.cheung Specialist Sales: JamesBrady44 20 78884267 HYPERLINK mailto:james.brady Plastic PackagingSECTOR REVIEWSECTOR REVIEWNot So

2、Cyclical, Easing Cost HeadwindsFigure 1: Spot Polymer Prices (y-o-y % changes)40%30%20%10%0%-10%-20%-30%PolypropylenePolyethyleneQ1-17Q2-17Q3-17Q4-17Q1-18Q2-18Q3-18Q4-18Q1-19*PolypropylenePolyethyleneSource: The Plastics Exchange, *Q119 relates to average January prices (first 2 weeks)We lower our 2

3、019 and 2020 EPS estimates for BERY by 14% and 10%, respectively and lower our price target to $65 from $71. We reduce our SEE 2019-2020E EPS by 1% on a stronger US$ and lower our target to$46 from $47. We rate both stocks Outperform.BERY Low Expectations at a Discount. We see the derating of the st

4、ock over the past 12 months in combination with, in our view, low (or no) organic growth expectations, positive 2019 consensus earnings revision momentum (M&A driven), and the potential added benefit from abating and possibly reversing, cost headwinds as a good entry point. BERY has beaten its own F

5、CF guidance for 5 consecutive years. We see an opportunity for another beat in 2019. BERY is our top pick in plastics for 2019.SEE The Plan is Set, Delivery is Key. SEE requires delivery of organic growth and rapid execution and delivery of its announced Reinvent SEE Strategy to defend current valua

6、tion and drive the share higher via a turnaround of the negative earnings momentum. Post Q3 downgrades suggest a moderation of growth expectations. We note that consensus estimates have not reacted much to Reinvent SEE Strategy. We think the reinvent strategy should support earnings upgrades, thus o

7、ur Outperform rating. Execution risk and valuation make us preferBERY.BMS Get the Deal Done. We rate BMS Neutral. BMS trades at a 4% discount to the fair value of the AMC deal. We believe that is fair as the deal has yet to complete and the likelihood of a competing bid lookslow.DISCLOSURE APPENDIX

8、AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Creditto do in its As a be the a of of as a in Dealing with cost headwindsRelatively high financial leverage (2018E industry average 3.3x) and

9、general market uncertainty have weighed on the plastics packaging names. While macro risks have increased, most end-uses of consumer plastic packaging have limited cyclicality. Including healthcare/pharma we estimate c.70% of BERYs business is consumer driven, 80-85% of SEEs and 95%+ of BMSs. We thu

10、s see potential macro headwinds as a moderate earnings risk heading into 2019.Figure 2: One year sharepriceperformanceFigure 3: Total shareholder returns past 12months1201105%2.0%-4.5%-16.7%-4.5%-16.7%100-5%90807060Jan-2018Mar-2018May-2018Jul-2018Sep-2018Nov-2018BemisBerrySealedAirS&P 500-10%-15%-20

11、%-25%-30%-23.7%BMSS&P 500BERYSource:ThomsonReutersSource: ThomsonReutersIn 2018 the industry got hit by significant cost inflation relating to both the key raw material (resin) and other costs, freight, in particular. While pass-through contracts deals with resin price changes, full mitigation comes

12、 with a time lag. Other costs need to be mitigated by cost take-out and/or negotiated price increases. Considering the cost challenges the industry faced in 2018, we believe an average EPS growth of 20% (12% excl. lower US corporate taxes) and mixed (moderate) earnings revisions during the past 12 m

13、onths should be considered a sign of strength. We expect continued EPS growth in 2019 supported by cost recovery, company initiatives and full benefit from already made M&A transactions.Figure 4: EPS growth 2018E* and2019EFigure 5: EPS 2018/2019 consensus changes in the past 12months40%35%30%25%20%1

14、5%10%5%0%17%14%17%14%8%10%12%6%4%2%0%-2%-4%-6%-8%-10%4.5%-0.3%-2.0%3.8%-0.8%-7.8%2018E vs20172019E vs2018E2018 2019BMSBERYSEEBMSBERYSEE2018E vs20172019E vs2018E2018 2019*Actual fiscal 2018 for BERYSource: Company data, Thomson ReutersSource: Thomson ReutersBMSs share price performance stands out pos

15、itively, primarily driven by the agreed deal with Amcor where Amcor is to acquire the company in an all scrip deal expected to close during Q1-19. However, in contrast to the last couple of years we note that the momentum in BMSs earnings revisions turned positive in 2018 as a result of resumed orga

16、nic growth and benefits from internal cost cutting programs more than offsetting cost and FXBERY is our toppick low expectations ataSEE higher value ifstrategydeliversBMS trades AMC, limited nearupsideheadwinds. We also believe BMS earnings momentum benefitted from low expectations initially built i

17、nto 2018 estimates following poor earnings performance in 2017.2018 estimates were slightly reduced for BERY (2018 actuals have been reported) and SEE; a credible performance, in our view, considering significant cost inflation, time lag in resin price recovery and material FX headwind (SEE). BERYs

18、decision in Q4 to disrupt production in Engineered Materials for large-scale raw material qualifications runs with the intent to improve raw material flexibility also weighed on the fiscal 2018 outcome. To put material cost inflation into context, BERY called out $100m in cost under recovery in 2018

19、, equal to 7% of adj. 2018 EBITDA of $1,380m.What do we do with theshares?We rate BERY and SEE Outperform and BMSNeutral.BERY is our top pick in our plastic packaging coverage. We see the derating of the stock over the past 12 months in combination with, in our view, low (or no) organic growth expec

20、tations, positive 2019 earnings revision momentum (M&A driven), and the potential added benefit from abating, and possibly reversing, cost headwinds creating an good entry point. Leverage is manageable and the debt structure derisked by the companys action to lower exposure to rising variable rates.

21、 BERY has beaten its own FCF guidance for 5 consecutive years. We see an opportunity for another beat in 2019. Later in this report, we do a deep dive into BERY laying out the rationale for our preferred-in-plastics view on the stock.SEE is a different story that requires delivery of organic growth

22、and rapid execution and delivery of its December 13 2018 announced Reinvent SEE Strategy to defend the current valuation and drive the share higher via a turnaround of the recent negative earnings momentum. Demanding? Maybe. However, the negative 2019 earnings revisions triggered by sluggish volume

23、growth in Q3 suggest a moderation of growth expectations, and we note that consensus estimates have not reacted much to the December 13 announced Reinvent SEE Strategy. The full effect is subject to SEE delivers growth as planned. We see growth delivery (and the recent track record) as a potential r

24、isk of disappointment, justifying our relative preference for, in our view lower risk at a discount BERY. However, we acknowledge the potential for significant value if the strategy is delivered. We think the reinvent strategy should support earnings upgrades, thus our Outperform rating.BMS trades a

25、t a 4% discount to the fair value of the Amcor deal based on where the Amcor share is currently trading and a 5% premium to our fair value of the share as a standalone entity. We believe that is largely fair considering the deal has yet to complete and the likelihood of a competing bid looks small.

26、We view the likelihood of the deal not being finalized as low. To deliver value the combination, which has limited geographical overlap, needs to deliver the full $180m of the called out synergies by Amcor, equal to 4- 5% of BMS turnover. While we believe the synergy is achievable, the deal is initi

27、ally earnings dilutive and synergies are expected to take three years todeliver.Figure 6: Valuationtable18/01/2019RatingShare PriceTarget PriceUpside/ downside potentialEV/EBITDA2018E 2019E 2020E2018EP/E2019E2020E2018EFCF-yield2019E2020EBemisN$47.34$45.00-5%9.9x9.2x8.7x17.1x15.2x14.5x5.8%6.4%6.3%Ber

28、ry PlasticsO$50.42$65.0029%8.7x7.6x6.9x15.0 x13.1x11.7x9.8%10.2%12.1%Sealed Air Corp.O$37.74$46.0022%10.5x9.9x9.1x15.5x13.1x10.8x5.9%5.5%8.1%AmcorO$13.50$14.8010%10.6x10.2x7.4x15.5x15.3x14.2x4.9%5.7%8.7%Average9.9x9.2x8.0 x15.8x14.2x12.8x6.6%7.0%8.8%Note: Credit Suisse rating: O - Outperform; N - Ne

29、utral; U Underperform, 2018 actual for BERY Source: Credit Suisse estimates, Thomson Reuters Datastream2019 OutlookPlastic packaging is a heterogeneous market with a wide range of various end-uses. While packaged food demand remains weak, we see steady demand growth in health care, protein, fresh fo

30、od, personal care and e-commerce end-uses. The latter should in part be driven by changing pack formats in e-commerce.As discussed above, the major issue facing plastic packagers in 2018 was rampant cost inflation from steadily rising resin costs (50% of COGS) through Sep/Oct, sharply higher freight

31、 costs and tighter labor markets. Considering that some of these pressures are cyclical in nature, we see potential easing cost pressures in the event of a cyclical downturn as a potential offset to softer demand in cyclically exposedareas.Resin price changes are a major driver for near term share p

32、rice performance. While a significant part of contracts are on pass-through (85% for BMS, 75% for BERY, 5% of acquired revenues. Given the fragmented market structure, BERY sees an opportunity to target incremental strategic M&A transactions. Management says it sees a robust pipeline in all 3 segmen

33、ts it operates. BERY completed two acquisitions in fiscal 2018:Clopay for $475m, completed Feb 18. Clopay develops and manufactures specialty plastics films used in a range of hygiene, healthcare and industrial applications. BERY expects cost synergies of $40m (8.7% revenue LTM ended Sep 30, increas

34、ed from$20m originally expected at the time of acquisition). BERY sees 50% of expected synergies materializing in fiscal 2019. BERY says the purchase price represents an adj. EBITDA multiple below 6x post synergies including tax basis step-up. BERY sees this acquisition adding technical film product

35、ion capabilities where Clopay is a known innovator with patent protected breathable hygieneproducts.Laddawn for $242m, completed Aug 18. Laddawn is a manufacturer of blown polyethylene bags and films with an e-commerce sales platform. BERY expects to generate cost synergy of $5m (3.4% revenue LTM en

36、ded July 18) with full realization in FQ19. BERY expects the acquisition to add technical online capabilities via the e- commerce platform to support faster growing small and medium sized customer base on quicker customer response times and small orderfulfillment.CAPEX shifting to growth investments

37、BERYs capex as a per cent of revenues is not expected to change materially from recent levels around or slightly north of 4%. Capex guidance for 2019 is $350m, which is 4.2% of revenue on our estimates (4.3% in 2018). However, the focus of investments is changing from reaping synergy benefits and re

38、structuring to promoting top line growth. BERY expects already made and planned growth projects to support low single digit organic sales growth across all segments. Growth capex is targeting higher growth areas such as hygiene products in China, specialty products in air filtration and faster growi

39、ng wipes end uses.Consumer packaging: BERY partnered with customers in 2018 to launch a number of new products to address unmet needs including Verten (post-consumer recycled products for the beauty and personal care markets), Embark (child resistant containers for the growing legalized cannabis mar

40、ket) and Diagimarc (new printing technology to allow consumer interaction through the use of smartphones). Management sees a strong pipeline in product development especially in health care and specialty rigid packagingproducts.HH&S: In 2018, BERY started a $70m investment targeting premium applicat

41、ions in hygiene products in China expected to be commercialized by the end of calendar 2019. BERY has also invested $10m in air purification filtration for Asia expected to commence operations mid-2019. In North America, it has spent $50m on proprietary Spinlace technology in Mooresville, North Caro

42、lina, which will provide incremental 17,000 metric tons of annual capacity to support applications like gowns, drapes, disinfecting wipes with microbial control chemistry. Commercial production is expected in mid-2019. It has also expanded in Offranville, France, and Bangalore, India, sites to suppo

43、rt its global pharmaceutical customerbase.Engineered Material: BERY has secured a multiyear supply agreement with one of the packaging converter partners and will invest $20m for capacity expansion in the next 6months.We believe these projects in combination with some easy comparables from 2018 and

44、contract wins should support top line growth for BERY in 2019.The company has called out $50m in new business that started shipping in H2 2018. We believe this relates to significant investments in introducing a new proprietary, technological advanced solution in the food service market at a lower c

45、ost offering improved functionality andsustainability.New business was in 2018 offset by the companys decision to walk away from low margin volume (done by end of H1-2018) and rationalizing business associated with the acquisition of AEP (done by fiscal Q3-18). The impact of these business decisions

46、 should gradually create easier comps through 2019.BERY sees organic growth supporting medium term growth in EBITDA of c.5% per annum, ahead of our expectations of 2019-2021 CAGR of3.2%.Multiple opportunities to deploy (or return) capitalWe estimate BERY should generate $2.28bn in FCF in fiscal 2019

47、-2021. Absent M&A we expect BERY to opportunistically bu -back shares and reduce debt. We have assumed annual share buy-backs of $100m with the balance going towards debt reduction. Our assumptions would drive financial leverage to 2.2x by year end 2021.We see this a cautious assumption. We have no

48、visibility in what opportunities BERY may find to allocate capital in a more accretive way than reducing debt. However, considering still fragmented markets and a robust pipeline of potential targets, we think it is likely incremental capital could be allocated towards M&A. Another plausible use of

49、cash is the introduction of a dividend.Derisking the balance sheetBERY has a solid track record of deleveraging post deals. In 2018, leverage based on adj EBITDA was 4.0 x. However, adjusting for the timing of acquisitions (Clopay in Feb and Laddawn in August) the adjusted leverage was 3.8x. Some ma

50、y still consider that elevated although in line with BERYs set target (4x). We believe the leverage is manageable supported by BERYs strong cash flow and 2018 EBITDA interest coverage of 5.3x, the highest since the 2013 IPO and up from 4.9x in 2017.BERY has significant variable debt. At the end of f

51、iscal 2018, variable debt accounted for 62% of gross debt. However, BERY has swapped over $1.4bn from variable to fixed rates through the use of interest hedges; as a result, less than 40% of the $5.8bn gross debt is exposed to short term interest movements. BERY estimates a 0.25% increase in LIBOR

52、would increase interest expense by $6m. Highly manageable and not a significant earnings or cash flow risk, in our view.Cost / price recovery under wayBERY experienced nearly $100m of under-recovered inflation in fiscal 2018 and we understand the company expects to recover c.$50m in 2019 through aut

53、omatic resin pass through and negotiated price increases. BERY has automatic a pass-through arrangement on c. 75% of purchased resin with varying time lags. The company purchase 4.5bn pounds annually of which 55% is polyethylene and 45% polypropylene.BERY announced two price increases recently. On 2

54、4 September, it announced a 3-5% price increase in all Stretch Film products, effective 8 October, due to strengthening global demand, increase in cost of ethane feed-stock and supply chain inflation. On 15 November, it announced price increase in its HH&S division effective on or before 15 December

55、 2018 due to substantial increase in raw materials, freight and other input costs.As shown in Figure13, BERY last experienced a negative price/cost spread in 2014 and was able to recover margins after that from 15.8% in 2014 to 16.7% in 2015. With contractual pass-through, announced price increases,

56、 improved mix (exit from low margin business) and likely medium term easing tightness in North American polymer markets, we see cost under-recovery and the margin pressure experience in 2018 as a passing headwind.In fiscal 2019, we expect margins to expand by 50bps to 18%, with a y-o-y improvement s

57、tarting from FQ2. If recent resin price declines are sustained, we see upside to our margin expansionestimate.Figure 13: Price / Cost Spread and EBITDA MarginsUS$ in millions0-50-150201220132014201520162017201810%Mix & Price/ cost spread impact onMix & Price/ cost spread impact on operating incomeEB

58、ITDA MarginSource: Company data, Credit Suisse estimatesFQ1 2019 Results PreviewBerry reports FQ1 results February 1 before market opening.We expect FQ1 19 EBITDA of $336m, $1m ahead of IBES consensus and up 8%, y-o-y. We expect FQ1 EPS of $0.73 (up 9% y-o-y), 2c below consensus.Quarterly outlook: B

59、erry should continue to realize the benefits from cost savings and productivity improvements and M&A related synergies. Additionally Q1 results will be positively impacted by the timing of the Clopay and Laddawn acquisitions (completed in Feb and Aug 2018, respectively). We expect organic volumes to

60、 be +1% in the quarter. We expect costs to remain a headwind (y-o-y) but not incrementally. Qualification runs should continue to weigh on Engineered Materials earnings through FQ1 but notbeyond.The first fiscal quarter is typically the weakest quarter of the year due to seasonal factors, including