Orora (ASX:ORA) reaffirmed Earnings Before Interest & Tax (EBIT) guidance for the 12 months to 30 June 2027 (FY27) in a recent trading update. The troubled Saverglass division (which accounts for ~45% of the Company’s revenue and EBIT) continues to underperform. However, Saverglass’ EBIT is expected to recover in the second half of FY27. In addition, there are signs of earnings stability the other divisions and the Company is utilising an under-geared balance sheet to focus on capital management.

We recently researched in The Dynamic Investor to consider whether, on balance, ORA is starting to present value.

About Orora

In December 2024, ORA finalised the sale of its US packaging distribution business Orora Packaging Solutions. Subsequently, the Company now reports results across two segments:

i. Australasia Cans, which provides design and manufacturing solutions for cans across several categories. These include carbonated soft drinks, beer, cider, alcohol ready-to-drink.

ii. Global Glass, which includes the glass production facility as Gawler, which 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.

Saverglass Challenges Remain

While Saverglass reported volume growth of +6% in FY26, category mix shifts weighed on average selling prices and margins. FY26 EBIT margin fell 270 basis points (bps) to 10.2%.

Challenging price/mix trends are continuing in 1H27 and volume growth has retreated. EBIT in 1H27 is expected to decline by ~35%, which is at a similar rate of decline to 2H26. The industry backdrop for wine in particular is very difficult given oversupply of industry capacity in Europe and North America relative to demand. In addition, consumer demand is shifting away from wine. A mild recovery in EBIT is expected in 2H27, as industry conditions improve and the recommencement of operations at the Saverglass’ UAE facility in October 2026.

We consider Saverglass is in structural decline (in addition to the current cyclical challenges) given the: i) increased focus on health and wellbeing and ii) growth in consumption for the Ready-to-Drink (RTD) category.

Australasian Cans Continues to Drive Group Earnings

Recent investments in increased capacity at several facilities (Dandenong, Revesby and Rocklea) are expected to drive volume growth at the upper end of the target range (+4% to +6%) over the long term. The expected volume growth is also supported by benefits from the shift to aluminium (e.g. sparkling water, craft beer, seltzers, kombucha) category growth and recyclability.

In context, volume growth of +6.3% in FY26 was at the upper end of long-term target range, driven by recent capacity expansions and strong customer demand.

For FY27, the Company expects EBIT for Australasian Cans to be higher than FY26, with volume growth likely to remain at the top end of the target range. With the Rocklea facility nearing commissioning, ORA now has the capacity to support mid-single-digit volume growth until FY30.

Rightsizing Gawler as a Stable Contributor to Group Earnings

Following a review of its glass production capacity in Australasia – in light of continued weakness in the Australian commercial wine sector – ORA moved from a 3-furnace to 2-furnace operation at Gawler. The restructure entailed closing the G1 furnace and rebuilding the G3 furnace.

For FY26, EBIT rose by +10% to $28m, which was slightly weaker than management’s guidance for EBIT of ~$30m. Volumes declined 2%, with wine volumes broadly flat and beer volumes continuing to fall as the ongoing shift from glass to cans weighed on demand. The lower volumes partially offset operational efficiency benefits from the closure of the G1 furnace.

Given the persistent structural challenges facing the domestic wine and beer categories, Gawler’s future earnings trajectory will rely on operational efficiency and cost-minimisation rather than volume-led organic expansion. Hence, the business is likely to be a steady contributor to group earnings (as opposed to a key earnings driver). Importantly, the improvement in operational performance significantly mitigated the risk of a near-term asset writedown.

Gearing at Lower End of Target Range

Gearing (on a net debt to EBITDA basis) as at 30 June 2026 increased to 1.2x, from 0.9x as at 31 December 2025. The increase was due to a fall in underlying EBITDA and higher working capital levels. The latter reflects higher aluminium costs and impacts from higher Saverglass inventory as forward sales declined.

Notwithstanding the higher gearing level, gearing remains below the low end of the target gearing range of 1.5-2.5x. Further, with the recommencement of the share buyback program, gearing in FY27 is expected to increase to ~1.5x, placing it at the bottom end of the target gearing range.

Fundamental View

Notwithstanding the recent recovery in ORA shares, the current 1-year forward P/E multiple (~14.5x) is broadly in line with its historical average. In addition, the current multiple unappealing in the context of a modest EPS growth profile of +3% over FY26-29 on a CAGR basis.

Management have previously signalled a preference for capital management over Merger & Acquisitions (M&A). However, we consider that a strategic acquisition would be far more EPS-accretive than the current share buyback. Accordingly, establishing an alternative new growth leg via M&A is likely to be the next major catalyst for a re-rating. This is in light of ORA’s currently-modest medium EPS growth profile limited visibility on a turnaround in Saverglass’ earnings.

Charting View

Our previous commentary in the past few occasions has noted that ORA was in a downtrend and the risk was always to the downside. We still have not seen it break the downtrend yet so the long-term risk remains to the downside. However, short-term there could be a quick bounce now that it has pushed past resistance at $1.55. That is, we could see a short-term rally towards $1.80 but the longer-term technical view still looks poor.

 

Michael Gable is managing director of Fairmont Equities.

 

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