Ball Corp (BLL, $81): 10%+ annual return, limited downside

Ball will likely produce ~12%-15% EPS growth for the next 3-4 years, has a sustainable ROIC of 10%-12%, yet trades at 20x 2022 EPS. It is an outlier in a world of high priced growth and what we see as risky cyclical ‘value.’

Ball Corp is a reasonable business, not a great business. Ball’s largely commodity product (it’s just a can) and high capital intensity makes it mediocre quality, plus it only takes 18 months to bring on a new greenfield plant, hence a threat of oversupply and possibility of underutilisation of capacity in the future is a real issue.

However, BLL plays a critical role for its customers, who require consistent quality and reliability of supply. For that they reward BLL with fair returns, consistent margins and demand visibility via long term supply contracts in the highly stable drinks market. I.e. Ball is a reasonable business in a what had traditionally been a bad (oversupplied) industry. (Note that Ball has 4-5year contracts, with pass through costs on aluminium and coatings, so it is not a commodity play.)

The movement against plastic changed Ball’s poor business tag as aluminium cans are the answer. Capacity is sold out, most importantly in America, where there has been excess capacity for a very long time. We see tight, indeed sold-out U.S. capacity as likely for at least the next 4 years.

Link to our update: 29/07/21

Link to our initial research on BLL (2019)