A diversified industry leader with global scale – CCL holds a leading position in essentially every market that it operates in, most notably within the CCL segment where the company is the world’s largest converter of pressure sensitive and extruded film materials. Overall, CCL is widely diversified by end-market, customer, product/segment, and geographic region, which means that even when a particular market is experiencing soft demand, there are other uncorrelated markets servings as offsets. In turn, we believe this broad diversification narrows the range of outcomes as it relates to revenue growth, margins, and subsequently FCF.
A GDP+ grower – Overall, we believe CCL’s organic growth is largely predicated on the growth of its customers. Given the above-noted diversification, this largely translates into growth that tracks (above) global GDP growth. In our view, the "+" within GDP+ is driven by: 1) CCL being the global leader in the fragmented Pressure Sensitive Label market, which is one of the fastest growing Label markets; 2) a global manufacturing footprint that allows for a seamless experience for CCL’s multinational clients (critical during global product launches), resulting in “sticky”/ growing customer relationships; and, 3) exposure to faster-growing sub- categories, such as RFID and emerging markets.
Well-positioned to accelerate M&A – Although CCL is the largest global Label company, having grown its revenue at an 11% CAGR and acquired 65 businesses between 2014-2023, we estimate that the company only has a MSD-HSD% share of the market. Looking ahead, while CCL has had a relatively slow year of acquisitions YTD, we believe it is well-positioned to accelerate M&A activity going forward (i.e., leverage was 1.2x exiting Q2/24, which is at the low end of management’s 1.0x-3.5x target). Given CCL’s strong track record (tuck-ins typically acquired at ~MSD multiples), we believe a meaningful increase in M&A activity would be a catalyst.
Still seeing upside – While CCL’s stock has had a strong run YTD, we note that this was off of a trough multiple and that the company’s EV/NTM EBITDA is currently in line with its LT avg. of ~10.5x. We believe a premium is warranted given our organic growth forecast (modestly above the avg. since 2014), outlook for margin improvement, and relatively low leverage levels (we do not incorporate unannounced M&A into our forecasts). Our $92 PT is derived using an ~11.5x multiple on our 2025E EBITDA of ~$1.6B.