Orora’s (ASX.ORA) shares fell as much as 6% but have recovered half of their losses following a first-quarter fiscal 2027 trading update at its annual general meeting. Sales volumes were modestly lower than a year ago, and the Saverglass business was negatively affected by US tariffs and the Iran war.

Why it matters: The update was as expected. We forecast fiscal 2027 group adjusted EBIT to be 19% lower than the prior year. This is mainly due to lower sales from Saverglass and higher manufacturing costs, with one of its Middle East plants temporarily inaccessible.

  • We are not concerned by the lower sales volumes in the first quarter, as we expected slower growth in the glass businesses. In cans, which accounts for almost half of its revenue, sales are tilted toward the Australian summer months spanning its fiscal second and third quarters.

The bottom line: We maintain our $2.30 fair value estimate for no-moat Orora. Shares are cheap, trading at about a 42% discount to our valuation.

  • We believe the market has become overly impatient with the Saverglass business. Saverglass hasn’t had a normalized year under nearly three years of Orora’s ownership, with its business disrupted by headwinds including cost-of-living pressures, US tariffs, and the Middle East war.

Key stats: While we too have low expectations for Saverglass, we think the market is being too bearish on the prospects of Orora’s cans business, which is likely moaty. We estimate a 10-year EBITDA CAGR of a modest 1% for Saverglass. We forecast sales growing in line with nominal GDP in its main regions of Europe and North America, partly offset by anticipated declining market share given high competition and relatively low switching costs.

  • Conversely, we forecast a higher 10-year EBITDA CAGR of 7% for its cans business, which more than offsets likely modest growth from Saverglass. Orora is the largest of only two major can producers in Australia, with contracts with Coca-Cola, Asahi, and Suntory.

Orora’s Saverglass weakness continues, records impairment

Orora has three distinct segments: cans and glass bottles in Australia, and Saverglass, its global premium and ultrapremium glass bottle segment. In the Australian can business, sales are mostly to its three main customers, Coca-Cola, Asahi, and Suntory. However, its enhanced focus on premiumization supports profit margins with additional sales to craft breweries and niche beverages such as kombucha and other small brands. We expect this to complement the firm’s existing contracts, providing greater capacity utilization at its existing plants. Niche customers require a higher degree of customization, such as multicolor can printing, leading to higher margins for these sales.

The Australian glass segment has not recovered since China raised tariffs for Australian wine in 2020. Although tariffs were recently removed, we do not expect this segment to recover, with the market changing over recent years and Australian wine facing more competition in China. Consequently, the firm ceased operations at one of its three Australian glass furnaces from the end of 2025, lowering our long-term volume forecast for this business.

We expect the firm’s focus on premiumization in its Saverglass and Australian aluminum businesses to drive higher gross margin and sales growth. To this end, we estimate sales growth for high-end beverages of midsingle digits, exceeding nominal gross domestic product growth. We think consumers are drinking less alcohol per person but of higher quality, supported by a proliferation of drink brands from boutique wineries, distilleries, and craft breweries.

Bulls Say

  • Orora’s premiumization strategy underpins revenue growth and margin expansion.
  • We expect the ultrapremium, or status spirits, beverage segment to have less exposure to cyclicality than commercial beverages, supporting sales revenue growth above GDP.
  • Aluminum is increasing in popularity as a beverage container of choice. As the larger of an Australian can manufacturer duopoly, Orora stands to benefit from this trend.

Bears Say

  • The Saverglass segment operates in a highly competitive environment with larger competitors following similar strategies.
  • Glass manufacturing has high capital costs, with furnaces requiring regular refurbishment.
  • External market forces such as tariffs, taxes, and regulation could reduce demand for beverages, as happened following China’s tariffs on Australian wine.

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