Monday, Morgan Stanley initiated coverage on Ardagh Metal Packaging (NYSE:PKG) S.A. (NYSE:AMBP) with an Underweight rating and a price target of $3.20. The firm highlighted that Ardagh operates as a pure play global beverage can company within a competitive oligopoly and holds #2 or #3 market positions in key geographies, which could allow it to capitalize on ESG-related growth trends favoring the can industry.
Despite Ardagh Metal Packaging's solid prospects for volume and EBITDA growth, estimated at around 3% and 6% respectively for the years 2024-2026, Morgan Stanley anticipates the stock may underperform. The assessment is attributed to the company's challenging cash flow situation, which is marked by a highly leveraged balance sheet with a net debt to EBITDA ratio of 5.5 times.
The analyst pointed out that Ardagh's financial strain is further compounded by significant interest expenses and considerable dividend obligations to its parent company. These factors are seen as constraints on the company's financial agility.
Morgan Stanley's price target of $3.20 for Ardagh Metal Packaging is based on a 9x enterprise value to EBITDA multiple for the year 2024, which aligns with the company's average historical valuation. The target reflects the firm's view of the company's future financial performance in light of its current fiscal challenges.
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