(News Bulletin 247) – Deutsche Bank relaunched its monitoring of the glass packaging specialist on Tuesday, recommending to buy its action. The establishment praises in particular its ability to resist the economic cycle thanks to its exposure to premium segments, such as wines and spirits.

In the event of economic uncertainties, high-end positioning remains a benchmark. In all sectors. This is one of the reasons that leads Deutsche Bank to be optimistic about the evolution of Verallia shares. The German bank thus resumed on Tuesday its coverage of the stock for purchase with a target price of 48 euros, which gives a potential of 35% compared to the current price.

This favorable opinion allows Verallia to win 1.5% to 35.56 euros around 10:20 am, in a flat market, the SBF 120 nibbling 0.03%.

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An estimated market share of around 20%

The glass packaging market currently remains very consolidated. Quite simply because it presents significant barriers to entry, with high fixed costs, significant investments and maintenance, with ovens that run seven days a week and 24 hours a day. Thus according to Deutsche Bank , the first three players have 75% of the market share, that of Verallia hovering around 20%.

Above all, the tricolor group has an asset in this period of economic slowdown: its positioning. Deutsche Bank says its US analysts have conducted a thorough review of the glass packaging market during recessions. In 2009, this market fell by 3% then by 5% in 2010. These declines were fueled by beverages and beer, unlike liqueurs, wine and food.

But “with greater exposure to high-end products such as wine (46%) and spirits (11%), we believe that Verallia should weather the storm better than its comparables (its competitors, editor’s note)”, explains Deutsche Bank.

This important positioning in premium products is explained by Verallia’s strong presence in countries such as France, Portugal, Italy and Spain. “This has been established through long-term relationships with customers in the champagne and cognac industry (such as LVMH and Pernod-Ricard), as well as offering a wide range of differentiated products, with solutions for ‘personalized packaging’, adds the German bank.

This presence in premium products was strengthened by last year’s acquisition of Allied Glass in the United Kingdom. This Leeds-based group with revenues of more than 170 million euros in 2022 focuses on packaging for spirits such as scotch, whiskey and gin.

Margins set to grow

This is not the only factor that pushes Deutsche Bank to recommend the stock for purchase.

The establishment appreciates the financial performance of the company, which has experienced like-for-like growth of 8% per year on average over the year 2016-2022, compared to 2% for the glass packaging market as a whole. Its adjusted gross operating margin (Ebitda) increased from 22.5% in 2018 to 25.8% last year. Contrary to the consensus of analysts, which anticipates a deterioration of this margin this year, Deutsche Bank sees Verallia on the contrary increasing this profitability indicator by 40 basis points (or 0.4%).

“Even between 2021 and 2022, when energy spending skyrocketed, the business still managed to grow its gross profit margin and EBITDA margin, both on a reported and adjusted basis,” Deutsche Bank points out. . In the medium term, the German bank estimates that the company could post an adjusted Ebitda margin of between 28% and 30%. This is thanks both to its discipline on costs and to its strategy of price increases above inflation.

Verallia should also generate cash, Deutsche Bank anticipating operating cash flow of more than 2.5 billion euros cumulatively over three years. This should allow the company to finance its investments without any problem while reducing its debt and returning cash to its shareholders.

In addition, Deutsche Bank considers Verallia to be an ESG leader (environment, social, governance, i.e. extra-financial criteria which are becoming increasingly important in the eyes of investors) and appreciates its roadmap in terms of reducing its emissions. carbon dioxide, by 46% in 2030 compared to 2019, before achieving carbon neutrality in 2050.