Ardagh Metal Packaging Became A Dividend Stock Overnight With An Anticipated 8%+ Dividend Yield

Ardagh Metal Packaging Became A Dividend Stock Overnight With An Anticipated 8%+ Dividend Yield

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Sometimes the best investment ideas can be found in producers of the simplest things. Ardagh Metal Packaging ( AMBP ) hasn’t received a lot of attention here on Seeking Alpha and perhaps that helps to explain why the stock is so severely undervalued. This major aluminum beverage can producer went public through a SPAC structure and likely is one of the very few companies with actual revenue and EBITDA after de-SPAC’ing. In fact, the FY 2021 results indicate the EBITDA result has actually beat the projections mentioned when the going-public transaction was announced.

I rarely make bold statements, but now I strongly believe AMBP is a very strong buy as the current undervaluation will not continue. AMBP is the third largest producer of beverage cans in the world and is trading at a substantial discount to the two largest producers. Additionally, the company will start a very generous dividend program later this year which should result in a dividend yield of in excess of 8.5% based on the current share price.

That makes AMBP a perfect hybrid between an income investment and a growth investment as the company will increase its output by approximately 50% in the next few years. Data by YCharts The beverage can market: An acute supply shortage that may linger for a while

Opening a beverage can is something most of us do on a daily basis, and often more than once. It is a “commodity” we rarely think about, but it for sure is a container we don’t want to miss in our lives.

Over the past few years, the aluminum beverage can has been gaining importance for two important reason. First of all, more new product offerings are launched in cans rather than glass bottles, and secondly, the recyclability of aluminum cans is an advantage over other packaging methods. While the production process to produce new cans from recycled materials is less intensive than starting from scratch, I’m not fully buying into the “green” aspect of the aluminum beverage cans. The reason why I like them though is that they can be recycled indefinitely (so the can of soda you’re having right now could easily have been brought into the supply chain years ago) and that there’s a massive shortage of beverage cans. Ball Investor Relations Market leader Ball ( BLL ) has done an excellent job in setting the scene for the aluminum beverage can industry and the image above provides all relevant bullet points explaining the higher level of sustainability related to aluminum beverage cans.

The most important takeaway from Ball’s Investor Day in 2022 was the following image which shows the anticipated demand growth for aluminum beverage cans. Ball was expecting the demand to increase by approximately 100 billion units per year between 2020 and 2025. Ball Investor Relations The image above explains my bullish stance on the entire industry. The demand will increase by 100 billion units per year , and that means a lot of the growth pie still has to be divided up. Ball has added 12 billion units of capacity in the past year and will likely add an additional low double digit number to this year’s production capacity. But the underlying takeaway is clear: The worldwide demand will increase by such a substantial number all can producers will have to start firing on all cylinders.

Ball is the largest producer in the world with a production of approximately 112 billion cans in 2021, Ardagh Metal Packaging solidly ranks third in the world and is the number two in Europe, which represents almost 50% of its revenue . AMBP Investor Relations AMBP sees the same explosive demand as Ball was already alluding to in its 2020 Investor Day. Its conference call to discuss the Q4 results were very interesting as the company confirmed there is a domestic supply shortage in the USA of approximately 14 billion cans per year . This shortage will gradually decrease as the big three are increasing capacity in the US, but if anything, this information lends more credibility to Ball’s expectations to see the demand increase by 100 billion units by 2025.

Ardagh did not provide a demand outlook for 2025 but is keeping its focus on the mid-term growth targets. According to AMBP, the total demand for aluminum beverage cans will increase by 45 billion cans per year in the three core regions it is servicing. And while there already is a multi-billion shortage in the US, the demand […]

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