One of the most commonly used items in everyday life is the aluminum can. This, combined with other types of food and beverage packaging, is ubiquitous throughout everyday life because of what they hold and their low cost. Naturally, this should mean that there is a sizable market for companies to capture here. And one of the companies working to do so is a multibillion-dollar enterprise called Ball Corporation (BLL). In recent years, Ball Corporation exhibited fairly consistent growth on both its top and bottom lines. Growth really experienced a nice bit of upside during its 2021 fiscal year, leading some investors to think, perhaps, that it might make for a great long-term opportunity. In the future, I fully suspect that management will succeed in delivering value for shareholders. But this does not mean the company makes for a great investment at this time. With shares priced where they are today, shares don't look bad, but they don't look great either. Though pricey relative to the company's peers, the business probably is, at best, fairly valued.
The last time I wrote about Ball Corporation was in an article published in September of 2021. At that time, I rated the company a neutral prospect. I mentioned that recent performance achieved by management was definitely attractive and I indicated that the long-term outlook for the company should probably be favorable. That said, I said that if we do see some reversion back to prior years financial performance, shares would end up looking rather pricey. Since then, the company has performed more or less along the lines of what I would have anticipated. Shares have generated a loss for investors of 4.2%. That's not much worse than the 0.2% decline experienced by the S&P 500 over the same window of time.
At first glance, you might think that financial performance achieved by the company since the publication of my aforementioned article would be indicative of additional pain for the firm. I wouldn't go so far as saying that is accurate. In fact, overall financial performance for the business has been great. In the final quarter of the company's 2021 fiscal year, for instance, sales came in at $3.67 billion. That represents an increase of 18.4% over the $3.10 billion generated the same quarter one year earlier. Net income for the company rose, climbing from $227 million to $297 million.
Due to the strong financial performance to finish out the year, the picture for the company for all of 2021 was favorable. Revenue for the year totaled $13.81 billion. That represents an increase of 17.2% over the $11.78 billion generated in 2020. It also marks an all-time high for the company from a sales perspective. In addition to benefiting from a favorable pricing and product mix, the company also saw global beverage can volume for its business increase by 7%, with a 4% increase seen in its North America and Central America segment.
It's also important to note that management sees strong demand moving forward. So much so that they are making investments across the globe to keep production growing. As an example, in the first quarter of the 2022 fiscal year, the company is planning to start up another production line for its operations in South America. It also has other investments planned for that region. For its beverage packaging business in the EMEA (Europe, Middle East, and Africa) segment, new projects in the UK, Russia, and Czech Republic are planned for 2022. And the company is currently planning multiple expansions in both North America and Central America through 2022 and 2023. Of course, the company is not dedicated solely to growing its physical footprint. It's also not afraid to sell off certain assets that no longer make sense to hold when they could collect valuable cash in exchange. The latest example is the company's decision to sell its 49% interest in Ball Metalpack to Sonoco (SON) In a deal that values the subsidiary at $1.35 billion. The other 51% of the company is being sold by its owner to the same party as well.
With revenue having risen in the 2021 fiscal year, profitability for the company also jumped. Net income came in at $878 million. That compares to the $585 million generated in 2020. This, too, represents an all-time high for the company. Operating cash flows are a bit trickier. As the first chart in this article illustrates, this figure has bumped around in a fairly narrow range over the past four years. but the company does seem to be moving outside of that range. Because in 2021, it generated operating cash flow of $1.76 billion. If we adjust this to remove the influence of working capital changes, then cash flow would be even higher at $1.88 billion. This operating cash flow number compares to the $1.43 billion the company generated in 2020. And finally, we arrive at EBITDA. This has also been a bit volatile but has generally trended higher. In 2020, it came in at $1.67 billion. And for the 2021 fiscal year, management reported a reading of $2.13 billion.
Pricing the company using this data becomes a very simple process. Using the 2021 figures, the company is trading at a price-to-earnings multiple of 34.5. Its price to operating cash flow multiple is considerably lower at 17.2, while the price to adjusted operating cash flow figure is 16.1. Meanwhile, the EV to EBITDA multiple of the company comes in at 17.6. Now, it is worth mentioning that management expects long-term growth in earnings per share for the company to be between 10% and 15% per annum. If we assume the high end of this range for the company's 2022 fiscal year, multiples for the firm look quite reasonable with a price to earnings multiple of 30, a price to operating cash flow multiple of 15, a price to adjusted operating cash flow multiple of 14, and an EV to EBITDA multiple of 15.3.
To put the pricing of the company into perspective, I decided to compare it to five similar firms. On a price-to-earnings basis, these companies ranged from a low of 8.6 to a high of 24.7. And on a price to operating cash flow basis, the range was 3.2 to 16.8. In both scenarios, Ball Corporation was the most expensive of the group. Meanwhile, if we use the EV to EBITDA approach, the range is 6.2 to 58.4. In this case, four of the five companies were cheaper than our prospect.
|Company||Price / Earnings||Price / Operating Cash Flow||EV / EBITDA|
|Silgan Holdings (SLGN)||13.4||8.6||9.6|
|Berry Global Group (BERY)||12.0||9.0||8.5|
|Crown Holdings (CCK)||24.7||16.8||58.4|
|O-I Glass (OI)||15.1||3.2||6.2|
Based on the data provided, I do believe that Ball Corporation has established itself as a quality operator in its market. Long term, I suspect the company would do well for investors. If growth continues, shares could be more appealing in another year or two if prices don't move from here. On the whole, shares don't look particularly pricey. But they definitely aren't cheap either. I would make the case that, for now, shares are more or less fairly valued.
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This article was written by
Daniel is currently the manager of Avaring Capital Advisors, LLC, a registered investment advisor that oversees one hedge fund, and he runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.