Orora
About the author:
- Author name:
- By Alex Lu
- Job title:
- Analyst
- Date posted:
- 19 December 2016, 11:34 AM
- Sectors Covered:
- Industrials
Orora purchases The Register Print Group in the US
Orora (ORA) has announced the acquisition of The Register Print Group in the US for US$44.0m (A$59m). Based in New Jersey, Register is a full service provider of point of purchase (POP) retail displays and expands ORA's existing POP footprint into the northeast of the US. The deal will be fully debt funded and is expected to close in January 2017.
The acquisition multiple represents 5.8x historic EBITDA. In addition, ORA has agreed to reimburse the vendors for recent growth capex investments totalling US$3m. Including the reimbursement, the acquisition represents 6.2x historic EBITDA. We think the multiple is reasonable given ORA expects US$1.5-2.0m in synergies in the first 2-3 years with the acquisition to also meet its ROFE target of 20% by year 3. The multiple is also lower than ORA's purchase of IntegraColor (6.9x) back in March.
Value accretive deal that ticks a lot of boxes
The acquisition is in line with ORA's growth strategy of geographical diversity and increasing its exposure to the food/beverage, IT and healthcare sectors. Despite integrating Register into our forecasts, FY17 EBIT falls marginally (0.3%) to A$296m due to an increase in our FY17F AUD/USD assumption from 73c to 75c, negatively impacting the translation of North American divisional earnings. Excluding FX, we estimate the deal will be 1% EPS accretive in FY17 and 2.5% EPS accretive in FY18. Accretion increases from FY19 onwards as synergies are delivered.
Funding won't be a problem in our view as ORA has plenty of debt capacity with ND/EBITDA at 1.7x (vs <2.5x management target) at FY16.
Orora – our top pick in the Packaging sector
Given management's strong track record, we continue to back ORA to deliver value-accretive acquisitions over the next few years on top of its solid organic growth profile.
With a forecast 12-month Total Shareholder Return (TSR) of 14%, we maintain our Add recommendation.
More information
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