A mixed bag in Monday’s ASX session, with Pact Group taking a big hit on a profit warning and TPG coming back for another bite of the InvoCare cherry.
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Melbourne-based packager Pact Group (ASX: PGH) has corroborated the warning earlier this month from its giant global and Australian rival Amcor that sagging consumer demand is weighing on the outlook for the sector.
Amcor’s warning on May 3 saw its shares lose 10% in a day on the downgraded outlook for 2022-23 and 12 days later, Pact’s shares followed a deeper but similar track – down 14.6% to a year low of 82.5 cents at the close.
The shares hit a new yearly low of 80 cents in trading on Monday.
Pact blamed the downgrade on a combination of” tightening economic conditions, softer demand in Asia and recent weather events in New Zealand for softening the demand outlook in the last quarter.”
The company said that Pact while it has “a track record of resilience through tough economic cycles and is undertaking a comprehensive cost out programme focusing on flattening operating costs in FY24.”
All this means that it has cut its earnings before interest and tax forecast (EBIT) to a range of $142 million to $147 million for the June 30, 2023 financial year.
This is down from the previous forecast in February “that underlying EBIT was expected to be slightly ahead of FY22 underlying EBIT of $156.2 million, noting that the demand outlook was uncertain.”
Pact said its New Zealand packaging business, in its packaging & sustainability segment, “has been negatively impacted by weather events” while “the Australian packaging business has recently experienced reduced volumes across dairy & beverage and steel packaging…the Asia closures business has experienced softening in demand for beverages out of China.”
“As a result, this segment is expected to report underlying EBIT approximately $10 million lower than last year,” Pact forecast.
The company said its materials handling & pooling segment “is performing at expected levels with the second half underlying EBIT in line with FY22 second half performance.”
And the contract manufacturing segment “continues its turnaround and will deliver positive underlying EBIT in line with the update provided in the Company’s 2023 Half-Year Results release.”
Pact also said that its capital program “remains on track with an accelerated FY23 capital spend of approximately $125 million, and is expected to return down to normal levels in FY24.”
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Three weeks ago, private equity giant TPG pulled a $12.65 a share bid for funeral major Invocare (ASX: IVC).
Yesterday that decision was reversed as TPG returned with a higher priced bid of $13 per share, again via a scheme of arrangement deal.
The higher price came after the cheaper bid was rejected on April 23 and TPG departed the scene the next day.
InvoCare didn’t pull up the drawbridge completely, however, and left a large hint that a higher price might be more welcomed.
The question now is TPG’s $13 a share better than the rationale provided for the $12.65 offer – after all it’s only an extra 2.7% in value?
Judging by the publicity claims from target and bidder, everyone was a winner – TPG claiming a win, despite bidding against itself and InvoCare for forcing a higher price out of the private equity group.
TPG Capital was quick to claim victory in the battle for funerals group InvoCare, despite bidding against itself in a one-horse race.
But the $13 a share is only 2.8% above the $12.65 a share offer and no doubt well within the margin TPG had in place to get a bid home.
InvoCare’s board rejected the $12.65 offer because it “did not provide compelling value” for shareholders.
Does that mean the extra 2.8% or 35 cents per share now makes the offer ‘compelling’ for its shareholders?
So it would seem.
InvoCare shares ended Monday at $12.43, up 12%.
