We recently researched Orora (ASX:ORA) in The Dynamic Investor after the Company downgraded FY26 Earnings Before Interest & Tax (EBIT) guidance for its troubled Saverglass division. Saverglass accounts for 47% of the Company’s revenue and EBIT. Although, the Australasia Cans business is doing the heavy lifting regarding earnings growth.

Are there any signs of improvement in Saverglass’ fortunes that would make ORA a cyclical recovery play?

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.

Key Fundamental Drivers

Saverglass Challenges Persist

ORA reduced the underlying EBIT outlook in FY26 for Saverglass only eight weeks since their 1H26 result. Much of this guidance downgrade has been attributed to indirect costs from the conflict in the Middle East. However, it has also coincided with a string of softer customer results in key categories for Saverglass, such as Tequila, which is estimated to account for ~20% of volumes.

Putting aside the direct impacts of the Middle East conflict, Saverglass has experienced lower-than-expected volumes and a greater‑than‑expected negative mix shift. The latter is driven by a sharper decline in premium spirits volumes relative to premium wine and champagne. There has also been an unfavourable within‑category mix shift, which has weighed on average selling prices and margins.

The negative trend in product mix (spirits bottles are more profitable than wine bottles) has been evident for some time. The current sales mix (60% wine and 40% spirits) compares to 35% wine and 65% spirits when Orora bought Saverglass in 2022.

Further, while Saverglass has been successful in winning new customers and lifting volumes, new business is at significantly narrower margins.

What are the Prospects for a Recovery in Saverglass’ Earnings in FY27?

Given the anticipated challenges ahead in the trading environment over the next ~6-12 months, cost savings alone are unlikely to be enough to support earnings.

Commentary in the recent trading update pointed to a deteriorating volume environment, with volumes expected to decline modestly through 2H26 and be flat in 1H27. While volume trends have been weak, the strongest drag on overall revenue growth has come from sales mix (as noted above). The overall mix headwind contribution to revenue growth is still expected to be negative in 2H26 and is likely to continue into 1H27.

Should Orora Have Paused Capital Management?

Gearing (on a net debt to EBITDA basis) remains low, at 0.9x as at 31 December 2025. Despite the strong balance sheet position, ORA are now preserving capital and have paused the share buyback.

This announcement is considered prudent in light of the volatility in the current operating environment, as well as expectations for higher gearing by the end of FY26. Nonetheless, the halt on capital management has created uncertainty for investors about future capital management, given that:

i. Capital management initiatives underpinned ~50-60% of consensus EPS growth forecasts out to FY28.
ii. Recent messaging from the Company has outlined a near-term priority for organic growth (as opposed to pursuing Merger & Acquisition opportunities). In addition, the Company intend to distribute any excess capital to shareholders via on-market share buybacks.

The free cashflow outlook appears reasonable once accounting for the forecast dividend payment to investors and the already completed $119m of on-market share buybacks during the FY26 year-to-date. As such, one could argue that on-market share buyback activity should continue – especially given the considerable fall in the share price following the 2H26 trading update. Having said that, we expect the share buyback to resume in 1H27.

Fundamental View

ORA shares are currently trading on a 1-year forward P/E multiple of ~11x, which is at a substantial discount to both the 2-year average of ~14x and the 5-year average of ~15x. Notwithstanding the seemingly attractive multiple, we highlight several factors warranting a cautious view:

i. The current multiple is unappealing in the context of an EPS growth profile of +6% over FY25-28 on a CAGR basis. The latter has been revised down from +13.5% prior to the 1H26 results release.
ii. The short-term pause in capital management, which has been an ongoing feature of ORA’s investment appeal.
iii. A key concern arising out of the latest announcement is that the Company has limited visibility on the demand drivers ⁄ customer ordering pattern for Saverglass. In our view, this has increased the investment risk in ORA shares. It is worth noting that the performance of the Saverglass business since its acquisition by ORA has been below expectations.

Charting View

When we last looked at the ORA chart on 3 February in The Dynamic Investor, we commented about the weak chart, noting that “a failure to hold in here could see ORA get cheaper and head towards $1.80.” The stock has instead fallen much further. Despite this, we do not yet see any solid support emerge yet. At best, ORA might trade sideways for a while before it is ready to trend again.

 

Michael Gable is managing director of Fairmont Equities.

 

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