16 January 2007 19:36 [Source: ICIS news]
TORONTO (ICIS news)--The outlook for firms in the plastic packaging sector should be good in coming years, Merrill Lynch said on Tuesday.
An important positive for the sector is the prospect of lower plastic resin costs, the analysts said in a research note to clients.
Most plastic packaging companies are large buyers of plastic resins.
The significant low cost Middle Eastern petrochemical capacity expected to come onstream in mid 2008 should create excess global supply and put downward pressure on prices of key polymers like polyethylene (PE), but also polypropylene (PP) and polystyrene (PS), the analysts said.
Plastic packagers best positioned to benefit from falling raw material costs are those who can hold on to their product prices as they innovate.
Another competitive strength in a plastic packaging firm is global diversity, which would enable it to generate growth as emerging market packaging needs develop, the analysts said.
Merrill also noted the continued interest of private equity firms in the sector.
“We think there is a perception that the industry is ripe for further consolidation based on stable cash flow characteristics, prospects for asset rationalisation, and recent acquisitions by buyers like [private equity firm] Apollo,” Merrill said.
Merrill said that Illinois-based AptarGroup - a global supplier of dispensing systems for personal care, pharmaceutical, household and food and beverage markets - was its top pick in the sector with a target price of $72/share.
The stock was priced $60.82/share, up 0.8%, in Tuesday afternoon trading in ?xml:namespace>
Merrill added that it estimates that plastic resins account for about 25% of AptarGroup’s cost of goods sold.
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