Technicals | Jul 04 2019
Bottom Line 03/07/19
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $15.31 – $15.09 / $14.66 – $14.47 / $13.81 – $13.71
Resistance Levels: $16.78 (All-time high)
Back in August last year Amcor ((AMC)) was a leader in developing global packaging for a variety of food, beverage, pharmaceutical and personal care products. It employed 35,000 staff and had US$91b in sales. However, the company has announced the acquisition of Bemis Company, the largest flexibles packaging company in North America, which will take it a behemoth in the world of packaging. The acquisition will increase its market value to $23B, generate a revenue of $17B and employ more than 50,000 staff across 250+ plants. The new entity will have its primary listing on the NYSE within the S&P500 although will also retain its ASX listing.
For the six months ending the 31st of December 2018 revenues increased 1% to $4.55B. Net income before extraordinary items decreased 18% to $267.6M. Revenues highlight the Rigid plastics section increase of 6% to $1.41B. Net income was offset by General and administration expenses which increased 21% to $357.9M Broker consensus is "Hold". The dividend yield is 4.8%.
Reasons to be cautious:
? The Amcor-Bemis combination could be around 11% accretive.
? The potential capitalisation of $17 billion make it one of the largest paper and packaging producers in the world.
? Trading at around a 16% discount to valuation.
? Revenue synergies are a real possibility with the new Bemis deal.
? Market has negatively overcompensated for implied multiple being paid.
? Analysts expect positive contribution to Amcor's longer term growth profile.
? Grocery giants are looking for new ways to grow, and a key area is innovative packaging and formats.
? Broken higher out of a pennant.
In terms of the trend there was nothing not to like during our last look at AMC with price taking on a zone of resistance which coincided with all-time highs. The main obstacle was Type-A bearish divergence which had already triggered, making it a significant headwind. Not surprisingly the divergence proved to be important and triggered a short, albeit healthy retracement. We'd pencilled in minor degree wave-iii last time, with the subsequent retracement likely completing wave-iv at the recent pivot low. The divergence is no longer an issue with our indicator unwinding into the oversold position in reasonably quick fashion.
Once again the company finds itself hitting the zone of resistance which ideally this time around will be overcome in an impulsive fashion. One thing is for sure, thus far it's been a strong leg higher even though it's at up much lower degree. A push above the recent pivot high at $16.67 in a move that sticks is required as this will take the stock into blue sky territory. That said, on the weekly chart (not shown) there is potential for some bearish divergence should price break higher through resistance and immediately fail. Suffice to say, although an upside break would be positive, a little caution is required. For now though all we can do is watch the zone of resistance for signs of distribution.
If you like trading off weekly charts then an opportunity has arisen. The aggressive strategy is to buy following a push through the upper boundary of resistance, with $16.79 being the bullish trigger. Just be aware of the possible divergence mentioned above as this could prove to be a stumbling block. This is reason for us to refrain from making a formal recommendation although it remains firmly on the watchlist. If you initiate long positions place the protective stop just beneath old resistance/new support and use a trailing stop to manage the position.
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