Ardagh Metal Packaging: Get To Know This Little Known 11% Dividend Stock

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Ardagh Metal Packaging: Get To Know This Little Known 11% Dividend Stock

seekingalpha01-30

Ardagh is poised to benefit from long-term expected global growth for metal cans.Ardagh's efforts to increase cash flow are materializing and can help drive the stock higher.Ardagh's low valuation as ...

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DQuek
·02-07
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JohnnyGreig/E+ via Getty Images I have been digging up under covered and lesser known stocks recently. The most recent stock is Ardagh Metal Packaging S.A. (NYSE:AMBP). Ardagh is a Luxembourg-based company that supplies metal beverage cans for various uses such as beer/wine, energy drinks, soda, juices, teas, hard seltzers, and sparkling water. The company has some positive things going for it, which can help drive the stock higher in 2024 and beyond. Growth Catalysts Conditions are likely changing for the better for Ardagh. AMBP did experience some weaker global demand from retail price inflation/household financial pressures in recent years. However, the rate of inflation has been returning to normal. The latest report showed that prices increased 0.2% from November to December which is a pace that is more consistent with pre-pandemic levels. Core prices increased 2.6% in December on a year-over-year basis, which is a little above the Federal Reserve's target rate of 2%. The lower rate of inflation could put consumers in a better position to make purchases including the convenience of buying canned beverages. The long-term global growth outlook for metal cans is positive. The global market for metal cans is expected to increase at about 6.2% annually to reach about $106 billion by 2030. If this expected growth is achieved, it would likely provide a strong positive tailwind for Ardagh's metal beverage cans. AMBP improved its operating cash flow in 2023, which should contribute to earnings growth for Q4 which will be reported on February 22, 2024. Ardagh's operating cash flow increased from $205 million in 2022 to $405 million for the trailing 12 month period (ending in Q3 2023). The company expects to achieve adjusted free cash flow of $100 million for 2023 which is 2x higher than their previous guidance. Higher cash flow gives Ardagh more flexibility to invest in the business, pay down debt, for share repurchases, and to pay dividends. Looking ahead to 2024, Ardagh is poised to improve profitability. The company is streamlining its operations by closing its Whitehouse, Ohio facility in Q1 2024. The company mentioned in its Q3 2023 earnings conference call that the closure decision is to balance capacity and demand. This facility handled 10% of demand in North America. While, closing the facility could be perceived as negative by shrinking operations, it could have a positive effect on earnings as Ardagh's operations more efficiently match the market's current demand. The company is likely reducing unnecessary costs by closing this plant while meeting demand from its remaining facilities. AMBP also optimized its operations in Europe by closing its remaining steel lines in Germany at the end of 2023 in favor of two more efficient aluminum lines. The company expects this to help achieve future earnings growth. Current analysts' consensus estimates show that Ardagh's revenue is expected to increase by 3% to 4% to $4.96 billion while EPS is expected to grow by about 49% to $0.23 in 2024. This can be achieved through Ardagh's operational improvement strategies, and from stronger sales of beverages in metal cans which can be stimulated from lower inflation and from new marketing. The upcoming Super Bowl commercials on February 11, 2024 are expected to feature multiple beer and soda brands, which have beverages available in cans. Also, one of the leading drink companies, Monster Beverage (MNST) which offers beverages in cans has plans for new product launches and marketing strategies to drive sales going forward. These marketing strategies can bring more awareness for beverages offered in metal cans, which may increase demand for Ardagh's aluminum cans. Valuation Ardagh is attractively valued in terms of forward price/cash flow as compared to its competitors. Here's how the company stacks up:     AMBP  Greif (GEF)   Silgan (SLGN)   Ball Corp. (BALL)   Crown Holdings (CCK)    Forward Price/Cash Flow 4.3 10.7 8.3 9.2 7.8   Click to enlarge source: Seeking Alpha Ardagh is valued significantly below its competitors. The average forward price/cash flow among these five companies is 8.06. Ardagh is trading 47% below that average. I think that the forward price/cash flow metric is important for AMBP due to the company's efforts to significantly improve its cash flow. The company is on track to more than double its operating cash flow in 2023 over 2022. We'll see the final figure when AMBP reports Q4 2023 earnings in February. It looks likely that Ardagh can continue to grow cash flow at a strong pace due to the efforts to streamline the company's facilities. Cash flow is the life blood of the business which can help the company pay dividends, invest in the business, for share repurchases, and to pay down debt. Ardagh's stock has a good chance to outperform its competitors in 2024 due to the company's much lower valuation. The company's efforts to increase cash flow can be the positive catalyst to drive the stock for outperformance. I expect Ardagh's efforts to increase cash flow in 2024. Technical Perspective   Ardagh Metal Packaging (AMBP) Daily Stock Chart w/ MACD (Tradingview) The daily chart above shows the stock recovering after a sharp drop in 2023. The Q3 2023 earnings report from October acted as a positive catalyst for AMBP. Investors were pleased with Ardagh's results and guidance. The company beat analysts' revenue expectations by $49.7 million on a 10% year-over-year gain while earnings were in-line with expectations. The MACD indicator at the bottom of the chart shows a new uptrend as the blue MACD line increased above the red signal line and the histogram turned back to green. The positive momentum can continue as investors anticipate the Q4 earnings report on February 22, 2024. The next report should provide the direction for the stock. A continuation of the recent rally looks likely in my opinion as Ardagh's efforts to increase cash flow will be partly reflected in Q4. Plus, the company could give positive guidance for Q1 2024 as it closed the steel lines in Germany at the end of 2023 to streamline operations. So, the company would likely benefit in Q1 2024 with an optimized network to more efficiently meet demand. This could result in improvements in profitability for higher earnings and cash flow growth. High Dividend Yield In addition to the potential stock price appreciation, Ardagh pays a dividend with a current annual yield of nearly 11%. Ardagh increased the dividend payment by 33% over the trailing 12 month period. The company's improvements in cash flow makes future dividend payment increases likely. One investor concern in the past was Ardagh's high trailing payout ratio of 437%. However, the improvements in cash flow bring the payout ratio down to 267% on a forward looking basis. Continued increases in cash flow could bring the payout ratio down further to more attractive levels. Ardagh's Long-Term Outlook The main risk for Ardagh is the possibility of a shift in consumer behavior away from metal-canned beverages (beer, soda, energy drinks, etc). This could occur if inflation spikes again, leading consumers to cut back on canned beverages. A possible recession from higher interest rates could also lead to consumers to cut back on canned beverages. Then, there is always the possibility that an alternative beverage container could become more in favor over metal cans.  Despite the risks, I expect Ardagh to have a positive year in 2024. The stock's low valuation leaves plenty of upside potential for AMBP. The company's efforts to streamline its network of facilities for cash flow growth can be the catalyst to drive the stock higher this year. Increased marketing efforts from leading beverage companies can help drive demand for aluminum cans in 2024. The long-term expected global growth for metal cans can provide a positive tailwind for Ardagh over multiple years.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":271203574276160,"gmtCreate":1707249741260,"gmtModify":1707249761100,"author":{"id":"3579899712012688","authorId":"3579899712012688","name":"DQuek","avatar":"https://static.tigerbbs.com/0041a6750d53c4d39f0f9251bea439d3","vip":1,"crmLevel":5,"crmLevelSwitch":1,"idStr":"3579899712012688","authorIdStr":"3579899712012688"},"htmlText":"This is a great news!&nbsp;","listText":"This is a great news!&nbsp;","text":"This is a great news!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/271203574276160","repostId":2407351807,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":1,"commentSize":1,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}