At $14.00, we believe Amcor is oversold and investors should begin accumulating the stock.
As volatility picks-up in global markets, defensive yield names will begin to outperform in the next 3 to 6 months.
Amcor currently trades on a forward yield of 4.5% and the company pays a $0.26 dividend on the 27th of February.
AMCOR
Shares of AMC continue to hold above $14.40 after yesterday’s sharp reversal off of the $13.70 low.
After announcing their H1 net profit of USD330 million, versus USD309 million last year, the packaging giant lifted its interim dividend by 8% to 21 cents.
We are holding AMC in our ASX Top 50 model portfolio and consider the stock a “buy/write” name over the medium -term.
As such, we would look to sell the $15.00 call into June, which would allow investors to collect the February dividend of 25.6 cents and enhance portfolio returns with the call premium.
Amcor
Amcor will provide an earnings update to the market on the 12th of February and we expect the recent sell-off to find buying support ahead of the update.
The short-term momentum indicators are still trending lower but we feel value is beginning to emerge and investors should continue to watch this name for a move higher.
We recommend investors buy Amcor at $14.90.
In an increasingly expensive market, finding low volatility investments at a discount can be difficult.
We consider the recent sell-off in AMC and AGL represents a low risk entry level for a buy-write strategy.
AMC pays a 25.6 cent dividend on the 24th February and AGL pays 41 cents on the 23rd February.
We are then adding covered call options to enhance the yield and allowing for moderate capital growth.
The strategy is achieving 10 – 12% cash flow on an annualised basis.
We recommend investors look at Amcor with a view towards a buy-write strategy.
Owning the stock at $15.50 and selling slightly out-of-the-money calls into June 2018 generates 10 – 12% cash-flow, when combined with the February dividend of $0.25.
FY18 underlying EPS growth should be in the 5 – 7% range, placing AMC on a 4.3% forward yield.
Amcor
Amcor has been shortlisted to acquire the global leader in closures. Amcor identified closures as a new strategic segment at its investor sessions in June 2017.
If regulators approve the deal, Amcor may look to issue new equity.
We continue to view Amcor as a core holding and advise selling call options to enhance the return.
AMC trades on a forward yield of 4%.
AMC has identified challenging conditions going into 1H18 at its 1Q trading
update and AGM.
Profit headwinds relate largely to Asia and Latin America, along with rising raw material costs. AMC has guided to flat 1H EBIT, yet maintained FY18 guidance of around 5% EPS growth.
AMC trades on a forward yield of 3.6%, based on FY18 EBITDA of $1.6b.
We see the current sell-off as a buying opportunity and recommend investors cover with a $15.50 call option into June 2017, whilst keeping exposure to the February dividend.
On September 7th, AMC announced that they were in early takeover negotiations with US packaging firm Bemis Company.
The estimated value of the acquisition is in the AUD $5 billion range, which is not a quite 1/3 of AMC’s market capitialization of AUD $18 billion.
Shares of AMC have traded about 3% lower since the announcement and reached a 2-month low of $15.20 last Friday.
We believe the internal momentum indicators are approaching an oversold condition, and consider current prices a reasonable level for a buy/write strategy.
Amcor
Amcor and Caltex are now at price levels where we’re buying the stock and selling covered calls into June 2018.
These are income trades as the payment of the Feb/Mar dividends, combined with the call income, is generating in excess of 10% cash flow whilst allowing for moderate capital growth.
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