ORA’s Australasian revenues continue to grow, with North America returning to trend after a few very strong years. Much of the NA revenue decline is due to price deflation.

Despite the fall in NA revenues, Adjusted EBIT was flat, on the pcp, as lower margin customers were moved out.

ORA call out procurement benefits, site rationalisation and overall productivity improvements as key to maintaining EBIT whilst revenues fall, alongside the aforementioned lower margin client churn.

The Australian cans business performed well, whilst glass (wine and beer) were weaker. A flat EBIT outcome here is arguably a good result.

But the result is somewhat less relevant than how the new, sizeable, Saverglass integration will go. You can see the market is not giving the company any benefit, here, in the comparison of market cap to assets (e.g. the market is highly skeptical that this will be meaningful to NPV cashflows).

Cashflows were quite strong, over the past half…

…which is just as well given Saverglass has raised the gearing levels. Recall that as Saverglass finished towards the end of the year, there is no meaningful earnings and cashflow benefits washing through in this period, but you have the full weight of financing (additional share count, more debt) weighing on the metrics.

Saverglass is a high-margin business (luxury spirits/wine bottles, basically beautiful packaging that helps sell/brand/move the underlying product, like Grey Goose), and that high margin will drive group margins over time.

The below comments on the first month of SG ownership matched the December trading update, which was already weaker than the pro’forma from the cap raise slide deck, in our view. They bought an asset into a slowdown for their product lines. That’s bad.

However, as per the below (look to the bottom paragraph) mgmt are still broadly sticking to those pro’forma guides, albeit with some throat clearing about “if destocking continues”. That seems likely, at this stage, I think. However the overall comments about expecting group EBIT to grow ex SG is well taken.

ORA is trading cheaply, on 12-13x. It’s a good business, but the market is highly skeptical on this bit of European empire-building. Saverglass could well be over-earning (as luxury did well over the pandemic, and drinking in particular) and thus it seems plausible that sales and earnings momentum could roll.

Our take on mgmt commentary (reading between the lines) has seemed to suggest this is in fact happening, at the margin, and that suggests the acquisition could already be underperforming.

However, given the de-rating in the stock, the good cashflows, and the lack of value ascribed to the target we are inclined to look through it.

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