Shares in Orora (ASX:ORA) have had a volatile run since issuing a profit downgrade in mid-May. More recently, a recovery in the share price prompted us to research the Company in The Dynamic Investor to assess whether there is scope for a further upside.
About Orora
In December 2024, ORA finalised the sale of its US packaging distribution business Orora Packaging Solutions (OPS) for ~$1.7b. Subsequently, the Company now reports results across two segments:
i. Australasia Cans, which provides design and manufacturing solutions for cans for customers across several segments, including carbonated soft drinks, beer, cider, alcohol ready-to-drink.
ii. Global Glass, which includes the glass production facility at Gawler. Gawler produces quality glass products ranging from wine, beer and spirits to olive oil and juices. The Global Glass segment also includes the Saverglass business (acquired in December 2023). Saverglass is a global leader in design, manufacturing and decoration of high-end bottles for the premium & ultra-premium spirits and wine market. ORA discloses Saverglass’ results separately.
Key Fundamental Drivers
Australasia Cans Carrying Group Earnings
Australasia Cans is the strongest-performing division, despite a weaker 1H25 volume growth delivery (+1%). Its EBITDA margin of 15-16% in 1H25 is comparable to that of global peers at 15-17%. In the recent update, ORA noted that cans volumes in 2H25 have been stronger (~4% to date) and in line with long-term trends. The stronger volume growth (relative to 1H25) reflects the end of de-stocking and has been achieved despite volatile trends in order intakes, particularly in March – April 2025.
Recent investments in capacity (Dandenong, Revesby and Rocklea) are expected to drive growth over the long term. This is supported by benefits from the shift to aluminium (e.g. sparkling water, craft beer, seltzers, kombucha) category growth and recyclability. ORA is targeting $30m in additional EBIT by FY28 from the expansion in cans capacity. In addition, the Rocklea plant has potential to add a further $20m of EBIT assuming 15% Return On Funds Employed.
With the additional 33% capacity expansion, the Company noted that it supports ~5% volume growth per annum (compared to 1-2% growth without). Importantly, there is no further investment required until 2030. The higher volume growth outlook supports stronger earnings growth for the division over the medium term. This assumes that solid volume growth (~5%) persists through FY26.
Saverglass Remains an Earnings Headwind
Since its integration into the broader Orora group, Saverglass’ volume growth has been being impacted by de-stocking and weak consumer (particularly in Europe). Saverglass continues to provide an earnings headwind from volatile demand, which initially began with destocking. However, the volatility has now extended into underlying demand weakness and US trade tariffs. Volume Improvement is being offset by a mix shift towards the lower-margin wine and champagne categories (compared to higher value premium+ spirits.
Overall, EBIT growth in FY26 is expected to be mostly flat compared to FY25. A modest recovery in volume is expected in FY26, supported by two factors: i) New business wins in premium wine ⁄ champagne and ii) A stabilisation in the global demand environment for premium wine/spirits.
Balance Sheet Capacity For Capital Management
ORA now boasts a strong balance sheet after using the net proceeds from the sale of OPS (~A$1.7b) to pay down the majority of its debt balances. This resulted in gearing (on a net debt to EBITDA basis) declining to 0.28x as at 31 December 2024, down from 2.8x as at 30 June 2024. The current gearing level is well below the Company’s revised target gearing range of 1.5-2.5x (previously 2.0-2.5x).
Gearing is expected to increase in 2H25 in light of the growth CAPEX program for Cans and the on-market share buyback. However, gearing is expected to remain below the target range over the medium term, assisted by strong cash generation and a tapering of growth CAPEX from FY26 to FY27. Notably, no new capacity investment expected until after 2030.
ORA is estimated to have ~$800m of available balance sheet capacity to undertake the current 10% share buyback as well as further growth initiatives. Accordingly, there is potential for another share buyback in FY26, given that the Company intend to distribute any excess capital to shareholders via an on-market share buyback.
Fundamental View
The Company remains well positioned to benefit when global volumes improve, which is evident in EPS growth of ~18% over FY25-27 on a CAGR basis. This strong EPS growth profile also reflects the returns on growth CAPEX from the capacity expansion in Australasia Cans.
However, we highlight several factors precluding a re-rating from current levels:
i. ORA shares are currently trading on a 1-year forward P/E multiple of ~15.0x, which is slightly above the 2-year average of ~14x, but broadly in line with the 5-year average.
ii. ORA needs to demonstrate that the integration of the Saverglass acquisition results in improved financial metrics (i.e. expanded EBITDA margin and higher revenue growth). To this end, a more sustainable recovery in Saverglass’ volumes and earnings is the key catalyst for ORA.
iii. The market needs to see evidence that the expected step-up in volumes in Australasian Cans – to ~5% volume growth per annum is sustainable.
Charting View
ORA remains in a downtrend. It has bounced well off the April low but it is now approaching a major resistance line. If it can break above this line near $2.10, then we could see it make a further move up towards $2.40. However, at the moment it is a risk of turning lower here at resistance.
Michael Gable is managing director of Fairmont Equities.
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