Analysts reduce Orora target price on guidance downgrade
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The news: Analysts have retained their ratings but have reduced their target price for Orora after the packaging company downgraded its full-year earnings guidance due to softer demand and volumes across its business.
The numbers: On Tuesday, Orora said that it expects full-year earnings before interest and tax to be in the range of $307 million to $317 million compared to $320.5 million in the 2023 financial year.
The Melbourne-based company reported a drop in first-half profit amid softening demand and higher costs related to its Saverglass deal, which it acquired for $2.26 billion in September 2023. Saverglass EBITDA is now expected to be between €84 million ($139 million) and €88 million, down from a previous estimate of €98 million.
Orora shares closed 14.7% lower on Tuesday, tumbling from $2.72 to $2.32, and dipped a further 5% to $2.20 by 10:30am AEDT on Wednesday.
The context: Morgans analysts retained their "hold" rating on Orora despite the "disappointing" trading update. However, the stockbroking firm reduced its target price from $2.70 to $2.30 off the back of the announcement.
Macquarie analysts said Orora's downgrade was "not entirely unexpected" given the risk of "prolonged customer destocking" noted in the company's December and February updates. They also said the removal of China's tariffs on Australian wine has a potential $10 million EBIT benefit over a two to three year period. The analysts lowered its target price from $3.17 to $2.75.
Goldman Sachs analysts agreed that the downside to Saverglass was anticipated, however, the downgrade in Orora's North America was the "key source of disappointment". They retained their "buy" rating for Orora but cut its target price by around 12% to $3.00.
Citi analysts also reduced their target price — from $3.16 to $2.86 — but retained their "buy" rating. Analysts said they "cautiously expect" that this could be Orora's last downgrade, noting improved conditions in paper and glass, with expectations that earnings per share will be "materially higher" in 12 to 18 months.
Jarden analysts reduced their target price from $3.20 to $2.50 but retained their "overweight" rating. They noted that their forecasts and investments views had "been too optimistic in a challenging operating environment and whilst integrating a large-scale acquisition".
The sources: Morgans research, Macquarie research, Goldman Sachs research, Citi research, Jarden research
