Packaging and Containers Sector Ideas

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>>> These companies have the most at stake when the world clamps down on plastic pollution


MarketWatch

Feb. 6, 2020

By Philip van Doorn


https://www.marketwatch.com/story/these-companies-have-the-most-at-stake-when-the-world-clamps-down-on-plastic-pollution-2020-02-04?siteid=bigcharts&dist=bigcharts


Investment bank Jefferies highlights potential winners and losers as governments and companies work to clean up the mess


Pollution is a tremendous and complicated problem around the world, requiring a variety of actions by governments, companies and people to clean up waste and reduce harm to the environment.

Analysts at New York-based investment bank Jefferies Group have published a detailed research report describing many approaches to mitigating the plastic-pollution disaster. They highlighted companies that might suffer from narrower profit margins under overlapping pollution-reduction scenarios, as well as those that may benefit from new rules and cleanup programs.

The growth of the plastics industry that led to the disaster illustrated above was summed up in one word a long time ago:

Plastic has been a boon to all of us, making so many things lighter, less expensive and more durable. But the problems of single-use plastics and the incredible amount of plastic waste in the world’s oceans are familiar to most people. It’s only a matter of time before world governments take strong action to reduce pollution and begin the plastic cleanup in earnest. Scores of companies have already signed pledges to reduce their own plastic pollution.

One example is Coca-Cola US:KO, which has pledged to have bottles through which their beverages are distributed be made of at least 50% recycled plastic by 2030, and to recycle at least one bottle for every one the company sells. Another is Kraft Heinz US:KHC, which has pledged to have its ketchup bottles made of 100% recycled plastic by 2022.

Just as innovation has solved other dire threats to humanity, it seems likely that new processes will enable people to clean up the oceans, once the political will is summoned.

Cleanup scenarios

In the research report published Feb. 3, Jefferies analyst Simon Powell wrote: “Recycling rates in many places are low, and in some markets actually falling, while demand for plastic packaging is rising.”

That’s a recipe for even more pollution, but the widespread knowledge of the growing problem is likely to lead to actions that will affect many companies and their shareholders.

“Across the whole plastics value chain, packaging represents the largest and fastest-growing segment,” according to Powell. “Asia-Pacific is the largest market for plastics, accounting for nearly half the volume, and will continue to grow quickly as consumer spending keeps pace with rising income and wealth.”

China stopped importing other countries’ plastic waste in 2017, which means the world’s plastic recycling has actually declined, while incineration and landfill use has increased.


“[A]n integrated approach consisting of better global waste collection, increased recycling, lower reliance on single-use plastics and packaging, energy recovery through incineration, and new technologies will be required,” Powell wrote.

Powell and a team of Jefferies analysts dug deeply into the advantages and disadvantages of approaches to limiting the production of single-use plastics, and disposal and recycling techniques. They also listed companies that would be affected under four scenarios through which the plastic-pollution problem can be mitigated:

Scenario 1 — bans and taxes

This scenario includes proposed or enacted legislation in many countries. An important example is China’s ban on plastic bags in major cities by the end of this year and all cities by the end of 2022. “Plastic resin used in packaging and, specifically, single-use packaging, is most at risk in terms of future demand,” according to Powell.

The companies with high revenue exposure to affected plastics under Scenario 1, relative to peers, according to the Jefferies analysts, include:

COMPANY TICKER COUNTRY

Amcor PLC US:AMCR United Kingdom
Aptargroup Inc. US:ATR United States
Berry Global Group Inc. US:BERY United States
Sealed Air Corp. US:SEE United States
Sonoco Products Co. US:SON United States
FP Corporation JP:7947 Japan
Winpak Ltd. CA:WPK Canada
Gerresheimer AG DE:GXI Germany
Greif Class A US:GEF United States
Source: Jefferies


To simplify this scenario, Jefferies has a base case of “hard-line” bans on single-use plastics beginning in 2023 to be “extended globally” by 2020. The analysts see such expected developments as “positive” for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Ball Corp. US:BLL Containers/Packaging United States
Mondi PLC ADR US:MONDY Pulp & Paper United Kingdom
Smurfit Kappa Group PLC ADR US:SMFKY Containers/Packaging Ireland
Orora Ltd. ADR US:ORRYY Containers/Packaging Australia
Sources: Jefferies, FactSet

And “negative” for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Amcor PLC US:AMCR Container/Packaging United Kingdom
FP Corp JP:7947 Containers/Packaging Japan
Winpak Ltd. CA:WPK Containers/Packaging Canada
Aptargroup Inc. US:ATR Containers/Packaging United States
Sources: Jefferies, FactSet


Scenario 2 — physical recycling accelerates

Under this scenario, “collection rates for plastic packaging reach 50% and 10% of all resin demand comes from recycled material,” by 2030, according to the Jefferies team.


Scenario 2 will be positive for these companies, according to the analysts:

COMPANY TICKER INDUSTRY COUNTRY

Republic Services Inc. US:RSG Environmental Services United States
Waste Connections Inc. US:WCN Environmental Services Canada
Waste Management Inc. US:WM Environmental Services United States
Casella Waste Systems Inc. Class A US:CWST Environmental Services United States
Veolia Environnement SA FR:VIE Water Utilities France
Sources: Jefferies, FactSet

And negative for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Indorama Ventures Public Co. ADR US:INDOY Chemicals Thailand
Lotte Chemical Corp. KR:011170 Chemicals South Korea
Braskem SA BR:BRKM3 Chemicals Brazil
Mitsui Chemicals Inc. ADR US:MITUY Chemicals Japan
Sources: Jefferies, FactSet


Scenario 3 — chemical recycling ‘goes mainstream’

The base case here is for pledges made by companies and governments under the “New Plastic Economy Global Commitment” to be implemented by 2030, with new recycling technology used across the world by 2025. The Jefferies analysts expect under this scenario for “recycled content in packaging start to hit 50%.”


The analysts expect this scenario to be positive for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Nestlé SA ADR US:NSRGY Food: Major Diversified Switzerland
Mondelez International Inc. Class A US:MDLZ Food: Major Diversified United States
Coca-Cola Company US:KO Beverages: Non-Alcoholic United States
Berry Global Group Inc. US:BERY Containers/Packaging United States
Sealed Air Corp. US:SEE Containers/Packaging United States
Covanta Holding Corp. US:CVA Environmental Services United States
Sources: Jefferies, FactSet

And negative for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Ball Corp. US:BLL Containers/Packaging United States
Vidrala SA ES:VID Containers/Packaging Spain
Stora Enso Oyj ADR US:SEOAY Pulp & Paper Finland
Packaging Corp. of America US:PKG Containers/Packaging United States
Sources: Jefferies, FactSet


Scenario 4 — shift to alternative packaging

This scenario envisions a consumer backlash beginning in 2021, causing “new types of retail solutions” to emerge and most consumer products to be sold “without single-use plastic packaging” by 2025.


The Jefferies analysts expect this scenario to be positive for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Ball Corp. US:BLL Containers/Packaging United States
Mondi PLC ADR US:MONDY Pulp & Paper United Kingdom
Smurfit Kappa Group PLC ADR US:SMFKY Containers/Packaging Ireland
Orora Ltd. ADR US:ORRYY Containers/Packaging Australia
Silgan Holdings Inc. US:SLGN Containers/Packaging United States
DS Smith PLC ADR US:DSSMY Containers/Packaging United Kingdom
Sources: Jefferies, FactSet

And negative for these companies:

COMPANY TICKER INDUSTRY COUNTRY

Amcor PLC US:AMCR Containers/Packaging United Kingdom
Winpak Ltd. CA:WPK Containers/Packaging Canada
PepsiCo Inc. US:PEP Beverages: Non-Alcoholic United States
L'Oréal SA ADR US:LRLCY Household/Personal Care France
Grupo Bimbo SAB de CV ADR US:BMBOY Food: Specialty/Candy Mexico
Sources: Jefferies, FactS

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