Equity Analyst, LightStream Research

Oshadhi Kumarasiri

An equity research analyst with over 7 years of experience in multiple sectors. Previously worked for one of the world's largest asset managers with about USD2.5trn in AUM, covering small and micro-cap companies in the consumer sphere across Europe and developed Asia. Also experienced in covering multiple industries including banking, insurance and asset management, retail, tech, telco and REIT.

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Reynolds Consumer Products I / Equity Capital Markets

Reynolds Consumer Products Inc is a leading consumer goods company in the US and it offers products under three broad product categories: cooking products, waste &amp; storage products and tableware. The company owns a portfolio of iconic consumer goods brands and its Reynolds® and Hefty® brands are the preeminent market leaders in their respective product categories. Furthermore, almost all the brands of Reynolds Consumer Products hold either the No. 1 or No. 2 position in their respective product categories, making Reynolds Consumer Products the undisputed leader in the US waste and storage products, food packaging and tableware industries.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/019/original/image_50591943541579941441455.png?1579941442" class="editor-image img-responsive" data-smartkarma-image-id="115019"></figure><div class="content-caption">Source: Company Disclosures </div>Reynolds Group Holdings Limited, the parent company of Reynolds Consumer Products Inc is a New Zealand based consumer goods conglomerate with operations across the world. Reynolds Group Holdings Limited is an asset heavy business largely financed by debt. As of September 2019, the company had a debt balance of more than $10.5bn which was about 63% of its total assets. In a bid to deleverage and provide more financial flexibility, Reynolds Group Holdings Limited has decided to IPO its Consumer Products segment under the name Reynolds Consumer Products Inc.There is a lot to like about Reynolds Consumer Products Inc. The company is head and shoulders above the competition in the US waste and storage products and food packaging industries. These industries are less volatile and therefore could attract a lot of interest especially with a potential global market downturn. It has stable top and bottom lines, healthy margins, stable operating cash generation (although operating cash generation looks very attractive on the surface, it is due to related party balances and factoring of the receivables balance and once adjusted, operating cash generation is around 55-60% of EBIT) and low maintenance capex.However, all that good gets undone with the assigned valuation of Reynolds Consumer Products Inc. We agree that Reynolds Consumer Products Inc deserves to trade at a premium over peers. The IPO price range suggests that at the lower end, Reynolds Consumer Products will trade at a 12% premium over the current forward EV/EBIT multiples of the US plastic and metal packaging companies and the premium increases to 18% at the higher end of the IPO price range. Peer multiples are currently trading close to their five-year high level. Thus, we feel future multiple expansion will be limited. Additionally, we expect earnings to stagnate and limit any material share price appreciation.Furthermore, the dividend yield will be around 3.2% at the lower end of the price range. Although it seems attractive compared to the industry (second best dividend yield among the US plastic and metal packaging companies) we feel the high debt burden assigned to Reynolds Consumer Products Inc by the parent could limit future DPS growth.Given all that we feel the IPO valuation is a big a put-off outweighing all the positives of Reynolds Consumer Products.

Reynolds Consumer Products Inc is a leading consumer goods company in the US and it offers products under three broad product categories: cooking products, waste &amp; storage products and tableware. The company owns a portfolio of iconic consumer goods brands and its Reynolds® and Hefty® brands are the preeminent market leaders in their respective product categories. Furthermore, almost all the brands of Reynolds Consumer Products hold either the No. 1 or No. 2 position in their respective product categories, making Reynolds Consumer Products the undisputed leader in the US waste and storage products, food packaging and tableware industries.Source: Company Disclosures Reynolds Group Holdings Limited, the parent company of Reynolds Consumer Products Inc is a New Zealand based consumer goods conglomerate with operations across the world. Reynolds Group Holdings Limited is an asset heavy business largely financed by debt. As of September 2019, the company had a debt balance of more than $10.5bn which was about 63% of its total assets. In a bid to deleverage and provide more financial flexibility, Reynolds Group Holdings Limited has decided to IPO its Consumer Products segment under the name Reynolds Consumer Products Inc.There is a lot to like about Reynolds Consumer Products Inc. The company is head and shoulders above the competition in the US waste and storage products and food packaging industries. These industries are less volatile and therefore could attract a lot of interest especially with a potential global market downturn. It has stable top and bottom lines, healthy margins, stable operating cash generation (although operating cash generation looks very attractive on the surface, it is due to related party balances and factoring of the receivables balance and once adjusted, operating cash generation is around 55-60% of EBIT) and low maintenance capex.However, all that good gets undone with the assigned valuation of Reynolds Consumer Products Inc. We agree that Reynolds Consumer Products Inc deserves to trade at a premium over peers. The IPO price range suggests that at the lower end, Reynolds Consumer Products will trade at a 12% premium over the current forward EV/EBIT multiples of the US plastic and metal packaging companies and the premium increases to 18% at the higher end of the IPO price range. Peer multiples are currently trading close to their five-year high level. Thus, we feel future multiple expansion will be limited. Additionally, we expect earnings to stagnate and limit any material share price appreciation.Furthermore, the dividend yield will be around 3.2% at the lower end of the price range. Although it seems attractive compared to the industry (second best dividend yield among the US plastic and metal packaging companies) we feel the high debt burden assigned to Reynolds Consumer Products Inc by the parent could limit future DPS growth.Given all that we feel the IPO valuation is a big a put-off outweighing all the positives of Reynolds Consumer Products.

Reynolds Consumer Products IPO: Excessive Valuation for a Stagnant Cash Cow