Market offers support to Orora’s Saverglass purchase from Carlyle

Hennessy is among Saverglass’s customers.Picture: Supplied.

The market appears to have thrown more support than expected behind Orora’s €1.29bn acquisition of bespoke glass bottle maker Saverglass with shares closing on Wednesday above the price of its equity raising.

That’s despite plenty of scepticism in the market that the deal would find support from investors, amid the call for so much cash amid soft economic conditions and questions about the merits of such a large deal for the $3bn Melbourne-based manufacturer.

Some suspected it could trade below the equity raising issue price once the deal was done because of the steep discount and the large amount of shares on offer.

Shares in Orora closed down 64c or 18 per cent to $2.88 after they had not traded for almost a week.

But they are not as low as its $2.70 issue price for its $1.35bn equity raising, comprising a $450m placement, a $875m 1 for 2.55 entitlement offer.

The raising at $2.70 per share is a 21.3 per cent discount to the company’s last closing share price of $3.43.

Analysts at Morgan Stanley said in research on Monday that the price paid for the business (equating to 7.7 times its earnings before interest, tax, depreciation and amortisation for the 2023 financial year) was fair, although they question whether a more complementary opportunity may have been a better fit.

Orora makes wine bottles and cans in Australia, while Saverglass makes bottles for high-end spirits like Hennessy cognac and Grey Goose Vodka, 39 per cent of which are sold in France.

“We think the deal is fair but view it as adding a third standalone asset,” the Morgan Stanley analysts said.

Meanwhile, UBS analysts said they expected investors to be focused on the potential for Saverglass to add earnings growth to Orora’s existing Australia and New Zealand beverage business and its North American distribution platform.

But they said that investors will also be looking for Orora to effectively incentivise the remaining Saverglass management team to deliver that earnings growth opportunity.

Since Carlyle bought the business for €560m, Saverglass vendors have invested €450m into the company over the last five years,including €230m on a new plant in Mexico.

The analysts see modest earnings per share gains in the 2025 financial year.

UBS analysts believe about 10 per cent of growth in EBITDA is required in both the 2024 and 2025 financial years to support the delivery of EPS accretion in fiscal 2025 given the equity dilution.

This level of growth compares to the 16 per cent EBITDA compound annual growth rate delivered between 2019 and 2023.

It is supported by growth in premium end-market demand alongside increased manufacturing capacity utilisation.

UBS has a price target on the stock of $3.75.