Summary

• Ardagh is poised to benefit from long-term expected global growth for metal cans.
• Ardagh's efforts to increase cash flow are materializing and can help drive the stock higher.
• Ardagh's low valuation as compared to its competitors leaves plenty of room to the upside for the stock.
   

Image Source: Pixabay

I have been digging up under-covered and lesser-known stocks recently. The most recent stock is Ardagh Metal Packaging S.A. (NYSE: AMBP). Ardagh is a Luxembourg-based company that supplies metal beverage cans for various uses such as beer/wine, energy drinks, soda, juices, teas, hard seltzers, and sparkling water. The company has some positive things going for it, which can help drive the stock higher in 2024 and beyond.

Growth Catalysts

Conditions are likely changing for the better for Ardagh. AMBP did experience some weaker global demand from retail price inflation/household financial pressures in recent years. However, the rate of inflation has been returning to normal. The latest report showed that prices increased 0.2% from November to December which is a pace that is more consistent with pre-pandemic levels. Core prices increased 2.6% in December on a year-over-year basis, which is a little above the Federal Reserve's target rate of 2%.

The lower rate of inflation could put consumers in a better position to make purchases including the convenience of buying canned beverages. The long-term global growth outlook for metal cans is positive. The global market for metal cans is expected to increase at about 6.2% annually to reach about $106 billion by 2030. If this expected growth is achieved, it would likely provide a strong positive tailwind for Ardagh's metal beverage cans.

AMBP improved its operating cash flow in 2023, which should contribute to earnings growth for Q4 which will be reported on February 22, 2024. Ardagh's operating cash flow increased from $205 million in 2022 to $405 million for the trailing 12-month period (ending in Q3 2023). The company expects to achieve adjusted free cash flow of $100 million for 2023 which is 2x higher than their previous guidance. Higher cash flow gives Ardagh more flexibility to invest in the business, pay down debt, for share repurchases, and to pay dividends.

Contnue reading at Seeking Alpha.

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