Packaging group Amcor Ltd is based in Australia but has arms also in New Zealand, Asia, Europe, North America, and Latin America, with manufacturing operations in 40 nations. The company is one of the world’s largest producers of plastic bottles, and one of Australia’s two largest producers of cardboard packaging.

Amcor has recently been in expansionary mode and has made a binding offer to acquire the Alcan Packaging Businesses from Rio Tinto, with the deal expected to generate positive EPS in the first full fiscal year afterward. Equity fundraising has been completed, and based upon the growth possibilities and fiscal health of the company, multiple analysts have rated the stock AMC a strong buy.

In addition to the other good news, on 24 August 2009 Amcor declared a dividend of 0.17. The stock’s EPS is 0.24 and the P/E ratio 23.29.

During the October conference call for Amcor’s first fiscal quarter, the company representative stated trading was “in line with expectations.” Although Amcor has not guided earnings for the coming fiscal year, analysts are expecting profit (not merely revenue) to rise 20%, in part because of the Alcan Packaging acquisition.

The fly in this particular honey pot is the strength of the Australian dollar. With Australia growing before most other developed nations, AUD is appreciating against other currencies, including the U.S. dollar. This will have a significant effect on Amcor’s profits. During the conference call, the Amcor representative estimated that for every penny AUD rose against USD, the company’s profits after taxes would fall by A$3 million.

The weekly chart, below, shows the effect of the financial crisis and global recession on AMC. Prior to the meltdown, the stock traded comfortably within a range between 6.50 and 7.75. However, in May 2008, as the shockwaves began rippling, AMC fell beneath the 6.50 support level, transforming it into resistance. This was promptly tested in September and November 2008, before the stock sank to a rather sad low of 3.74 on 5 March 2009—made even sadder by the fact that Amcor paid a dividend of 0.68 on 24 February, when the price was closer to 4.30.

More recently, a secondary resistance level has been formed just beneath the 6.00 level, at roughly 5.85 to 5.90. This has been tested and respected numerous times between December 2008 and the present.

Trendlines drawn from the most recent reaction high of 6.50, set 11 November 2008, and the low of 3.74, discussed above, show the stock consolidating within a triangle formation; as illustrated on the daily chart, below:

This is nothing unusual: considering the continuing consolidation within equities markets, following the bull rally that took place during the first five months of 2009, there are triangle patterns forming on numerous stock charts from all manner of industries.

A second, even shorter term triangle can be drawn from the 6 July low of 4.57 and the 7 September high of 5.89, illustrated below. Note that all trading gaps have been filled in:

AMC becomes a short-term buy upon touching the lower trendline. At some point, the stock will break from this triangle. Currently the building pressure seems bullish, but a precise determination cannot yet be made on that point.

technical analysis by Craig Liles

Popularity: 7% [?]