Shares in Melbourne-based Orora rose sharply yesterday after shareholders approved the return of $600 million dollars from the proceeds of the sales of its fibre packaging business to a Japanese company in 2019.
Back in August, shares in packaging group Orora fell 17% after revealing weak earnings for 2018-19 and a weak outlook. Yesterday, the company got most of that back when it revealed it had sold a part of its Australian operations to a Japanese company for a gross $1.7 billion, with news that most of the money will go back to shareholders in some sort of capital management.
The company expects to complete the sale of the fibre business by the end of the month. Credit Suisse now assumes $750m is distributed by way of a special dividend of $0.62. A $200m buyback is then expected in FY21.
The company's trading update was slightly weaker than Morgans expected. Orora has noted a slower start in 2019, primarily in North America. Challenging conditions are ongoing and the company is reviewing cost structures as appropriate.
Deutsche Bank considers the acquisition of Pollock Packaging for US$80.5m as a minor positive. The business appears to be a good fit strategically, although Orora will have to achieve the targeted synergies of US$6m to ensure it is accretive to value.
Orora’s result came in broadly in line with the broker, but required a 2% earnings beat from Australasia to offset a -5% miss from North America. The broker has trimmed FY19 forecasts and dropped its target to $3.70 from $3.87.