Ball Corp: Secular change?

The world has woken up to the problems with plastic recycling, namely that most (85%) of it is not recycled. There is no easy fix, and aluminium looks well placed to benefit. There are many signs showing that this is already happening. 

• We like Ball's returns profile, FCF generation and stability of earnings. Ball does not take aluminium price risk. Earnings growth in excess of 15% over the next two years.

• Ball Corp is best placed to exploit North American growth as Ball has 43% of its profits from NA bevcan, where the market is tight. 

• We see price increase to 'fair price' for the next three years as highly probable as bevcan suppliers are sold out, unable to meet demand, and have alternative buyers for the capacity. Repricing should take standard can pricing higher by ~4-5%.

Longer term, the main risk is excess supply, barriers to adding supply for the main players are weak and excess supply in the future is possible. Discipline within the four players needs to be watched closely.

• Given the announcement on Friday of the first new player, greenfield capacity entering the market, we expect increased concern on over-capacity, which may provide a better entry point closer to the mid $50s.

Potential Upside: $75(+18%)

Sensible Downside: $54(-15%)

Link to research