The steady performance of the packaging industry during the recent stock market turmoil is now a recognised phenomenon. Now more and more financial advisors and analysts are recommending that a safe bet for steady growth returns is to invest in the sector. US-based Crown Cork & Seal, which supplies consumer packaging to companies internationally is now the latest safe bet for stockholders to invest in, according to Gil Knight, a portfolio manager at Allied Investment Advisors.
"It's a turnaround story," Knight said.
In September 1998, Crown Cork & Seal hit a low point, announcing it would buy back 7.5 percent of its stock and take a $121 million (€130mn) charge in the third quarter to cover the costs of restructuring.
Still working on readjusting its balance sheet, the company has been selling off parts of its business, including its pharmaceutical packaging unit to Europe's Risdon Pharma for an undisclosed amount in March.
A big winner in the first quarter of 2002, Crown Cork stock gained 252.3 per cent - and Knight said he thinks the growth will continue.
About 40 per cent of the company's business comes from the United States, while close to 45 per cent of it comes from Europe, and Coca-Cola, Unilever and Nestle are among the names that grace the company's client list.
"It's a turnaround situation," Knight said. "They had a tough time for a long time. What's interesting about CCK is that it's one of three companies that control the (consumer packaging) market in Europe. "Prices are starting to go back up - as revenues start to improve, margins will improve, partly because of (the company's) cost-cutting efforts. That will give the balance sheet better numbers.
"CCK is involved in an industry that if pricing were to weaken, that could be a problem. But, only a small number of companies do this (type of work). Also, management has said they intend to sell off pieces of business they don't think are necessary to pair down debt on the balance sheet. About 86 percent of the capital was debt -- there is a risk that they can't sell off enough to lower the balance sheet."
Knight believes that the packaging market is now becoming a stalwart for investors, and that other names such as Silgan and Rexam will also provides steady returns. He believes that the current steady nature of the packaging sector should ensure that anyone investing in Crown Cork and Seal shares should see returns of between 15 to 16 per cent.