Flexible Can Capacity And Specialty Mix Will Drive A Stronger Long Term Outlook

Catalysts

About Ardagh Metal Packaging

Ardagh Metal Packaging produces beverage cans for customers across Europe, North America and Brazil.

What are the underlying business or industry changes driving this perspective?

• Steady share gains of beverage cans in customers' packaging mix, supported by can recyclability and energy efficiency relative to other substrates, can support volume growth and help underpin revenue and adjusted EBITDA.
• Category growth in energy drinks, ready to drink teas and coffees, wines and water in Europe and North America, where AMP already has exposure, can support higher shipments and a richer mix that is helpful for revenue and net margins.
• Ongoing investment in flexible and specialty can capacity in Europe, including line conversions to faster growing sizes, can reduce lost growth opportunities and improve plant utilisation, which can support EBITDA and earnings.
• New and expanding North American can sheet mills, together with diversified metal sourcing, can reduce supply chain stress and freight inefficiencies over time, which can support more stable volumes and improve margins.
• Continued execution on cost savings in plants, freight and lightweighting, alongside lower operational and overhead costs already visible in results, can support EBITDA and cash generation even if shipment growth is modest.

Assumptions

This narrative explores a more optimistic perspective on Ardagh Metal Packaging compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Ardagh Metal Packaging's revenue will grow by 4.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.1% today to 1.8% in 3 years time.
• The bullish analysts expect earnings to reach $105.7 million (and earnings per share of $0.28) by about January 2029, up from $-8.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 36.2x on those 2029 earnings, up from -313.8x today. This future PE is greater than the current PE for the US Packaging industry at 20.9x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.61%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Beer accounts for over 40% of the European portfolio and has had a weak year, so if consumer pressure or changing drinking habits in Europe turn out to be more than temporary, sustained softness in beer could cap shipment growth and weigh on revenue and adjusted EBITDA.
• North America is expected to grow only 1% to 2% at the market level in 2026, with Ardagh Metal Packaging already signaling it expects to be softer than that after contract and footprint resets. If volume share losses persist beyond what is currently described as a transition year, this could limit revenue growth and put pressure on earnings.
• Brazilian shipments fell 17% in the quarter on a weak industry backdrop, with beer down around 14% and soft drinks also weak. If adverse weather, weak household consumption or any future pack mix shifts away from cans prove more long lasting, the business in Brazil could struggle to grow volumes, which would weigh on margins and earnings.
• Higher aluminum costs, including tariffs and conversion cost headwinds in Europe, are already affecting input cost recovery, and management has acknowledged some risk to can demand if more of these costs flow through to shelf prices. If customers or retailers pass on more price increases than consumers can absorb, this could hurt volumes and net margins.
• A net leverage ratio of 5.2x adjusted EBITDA, with year end expected to be around 5x, leaves less room to absorb setbacks such as weaker volumes, operational issues, or a slower than expected benefit from cost savings and footprint changes. This could restrict flexibility on growth CapEx and dividends and create downside risk to free cash flow and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Ardagh Metal Packaging is $5.0, which represents up to two standard deviations above the consensus price target of $4.39. This valuation is based on what can be assumed as the expectations of Ardagh Metal Packaging's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $3.6.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $6.0 billion, earnings will come to $105.7 million, and it would be trading on a PE ratio of 36.2x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $4.2, the analyst price target of $5.0 is 16.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.