Plastics compounding and packaging companies are poised to see continuing volume growth amid improving economic conditions while passing on higher raw material costs, Wall Street analysts said.
Fermium Research analyst Frank Mitsch bumped up earnings estimates on US-based compounder and specialty chemicals company Avient (formerly PolyOne) as Q2 performance is likely tracking ahead of expectations.
“In Specialty Engineered Materials (SEM), we believe Q2 continued the material momentum in outdoor, high-performance sports (think Polaris – the company, not the United lounge) coupled with further wins across healthcare (i.e., glucose monitors, etc). We expect to see yet another quarterly record in SEM, driven by consumer and composites,” said Mitsch in a 25 June research note.
The analyst raised his Q2 earnings per share (EPS) estimate on Avient by $0.03 to $0.83, his 2021 forecast by $0.05 to $2.85 and his 2022 estimate by $0.05 to $3.15. He expects Avient’s Q2 sales to beat company guidance of $1.1bn, coming in at $1.215bn.
While plastic resins prices have been elevated, Avient has been able to offset raw material costs with price increases of its own, noted the analyst.
“Avient has focused a great deal on offsetting rising raws and costs with pricing and its efforts have been paying off this year,” said Mitsch, who maintains a “buy” rating on the stock.
Avient’s SEM segment produces composites for end-markets in consumer, cable and wire, electrical and electronics, transportation, industrial, healthcare, packaging, and building and construction.
The company also reduced its overall exposure to hydrocarbon-based raw materials with its July 2020 acquisition of Clariant’s masterbatch business for $1.44bn, with polyethylene (PE) and polypropylene (PP) now accounting for just 14% of raw material costs of its specialty businesses, he noted.
UBS analyst Joshua Spector reiterated his “buy” rating on US-based packaging company Berry Global, citing modest volume growth, deleveraging and low valuation.
“We believe Berry’s earlier shift towards greater investment in organic growth capex (capital expenditures) is now contributing to volume growth and expect this to continue,” said Spector in a 24 June research note.
The analyst expects organic volume growth of around 1-2% in the medium term, with 5% growth in fiscal 2021 (ending September), followed by more modest growth of 0.5% in fiscal 2022, whereas market expectations are for more meaningful declines, he noted.
The UBS analyst expects plastic resins raw material costs to abate eventually.
“Resin pricing has held higher for longer on continued supply issues and low inventories. However, we believe resin prices are already at unsustainably high levels and view declines as a matter of when, not if,” said Spector.
“Berry contractually passes through most resin costs with only a modest lag, and when prices do decline, we’d expect temporary benefits,” he added.
The company’s efforts on sustainability should also bolster its resilience.
“We believe Berry’s investments in product redesigns (recyclable), recycled/circular resin supply agreements (near 10% of sales), and global scale put them ahead of the competition (and could even drive growth),” said Spector.
Berry buys around 3.2m tonnes of plastic resins – including 55% PE and 40% PP – which make up around 50% of the cost of goods sold. Around 75% of its customers have a resin price pass-through mechanism which passes on price changes with a one-month lag on average, he noted.
Plus, some contracts allow for immediate pass-throughs when raw materials are extremely volatile, the analyst pointed out.
Berry produces plastic packaging for food and beverage, food service, personal care, health/medical, hygiene and retail/DIY, along with nonwoven specialties and industrial/construction films and components.
Focus article by Joseph Chang
Eastman is investing up to US$1 billion in building what it says is the world’s largest molecular plastics recycling facility in France. The new facility would use Eastman’s polyester renewal technology to recycle up to 160,000 metric tons of hard-to-recycle plastic waste annually – enough plastic waste to fill Stade de France national football stadium 2.5 times.
Korean battery maker LG Energy Solution has opened the books to investors to raise up to $10.8 billion in the country’s largest initial public offering (IPO), according to a term sheet seen by Reuters. The shares will be sold in a price range of 257,000 won to 300,000 won ($216.19-$252.36) apiece to raise between $9.2 billion and $10.8 billion, the term sheet showed.
The SHYNE (Spanish Hydrogen Network) project is the largest multisectoral consortium in Spain, created to promote the decarbonization of the economy through renewable hydrogen. SHYNE will have a total investment of €3.23 billion euros that will serve to develop more competitive technologies and evolve both the Spanish industry and its infrastructure towards decarbonization, generating more than 13,000 jobs.