Crown Holdings, Inc. is a leading supplier of beverage packaging, food packaging, aerosol packaging, metal closures, and specialty packaging products. The company is also a proven value creator, and the shares are undervalued according to Upslope Capital Management.
Upslope presented its case for Crown at the Valuex Vail conference held at the end of July.
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Crown Holdings: Does This Hidden Canner Offer Value?
Crown has a long and rich history. The business can trace its roots back to 1982, and while the firm generated $8 billion in revenue in 2016, it still operates as a small business. According to Upslope’s presentation, the current president, and CEO, Tim Donahue has been with the firm for 25 years even though he was only elevated to the position of CEO at the beginning of 2016.
The CFO has been at the business for 25 years as well, and the executive team is watched over by non-executive chairman John Conway, who has been at the firm for 40 years and was previously chairman and CEO. Base salaries for senior management range from $350,000-$915,000 with incentive bonuses between 8% and 15% of total compensation for the main executives. Looking at the above data, it’s immediately clear that this business is run by a skilled management team who, despite the group’s size, are all on modest salaries designed to inspire value creation.
Aside from management, Upslope likes Crown’s business model. The firm is the dominant producer in all of its markets with “sticky” customers who stay with the company for three to five years. After three years of elevated capital spending and acquisitions, over the next few years, the group should be able to de-lever and return cash to investors.
In 2014 Crown Holdings purchased Spanish/African group Mivisa for E1.2 billion and then in 2015 the company paid $1.2 billion for EMPAQUE a Heineken canner for Mexico. Major customers across the group include ABInBev, Coca-Cola, Pepsi and P&G among others.
Over the past decade, Crown Holdings has been able to use its leading position, sticky customer contracts, and reputation to drive impressive returns for shareholders. Return on invested capital hit 20% in 2008 and has remained above this threshold ever since. Adjusted EBITDA margins have increased along with profits rising to around 17% for 2017 from 10% for 2005. Free cash flow per share has remained stable at $4 per share for the past three years.
With these impressive metrics behind the business, through the end of the decade, Upslope expects management to reduce leverage to 3x from the current 3.4x and falling Capex (coupled with lower interest costs) will free up cash for buybacks and/or dividends.
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