What Stocks to Buy in 2025? Verallia Analysis: A Promising Opportunity in the Glass Packaging Sector

 

Verallia, founded in 1965, is the leading manufacturer of glass packaging in Europe. With a market capitalization of €2.8 billion, the company employs 11,000 people and specializes in manufacturing packaging for food and beverages such as wines, beers, spirits, soft drinks, and oils.

Revenue Breakdown

The revenue of Verallia is divided as follows:

• Still Wine: 31%

• Food: 17%

• Sparkling Wine: 12%

• Spirits: 16%

• Beer: 12%

• Non-Alcoholic Beverages: 11%

Stability of Glass Consumption

Glass consumption has historically remained stable, growing in line with economic expansion. From 2012 to 2022, glass packaging consumption in Europe increased at an annual average rate of 2.2% in tons, although revenue growth in dollars was more significant due to inflation. Verallia projects a 3.3% annual growth in dollar terms over the next decade, in line with economic expansion.

Competitive Advantages

Glass is 100% recyclable and maintains the integrity of food products, being impermeable to gases and liquids. Over 50% of the raw materials used by Verallia are recycled glass, reinforcing its commitment to sustainability. Additionally, the sector is protected by geographical and logistical barriers. Verallia’s plants are strategically located near customers since glass is costly to transport due to its weight and fragility. These factors create local advantages that limit the entry of new competitors.

The European market is dominated by an oligopoly led by Verallia, followed by Owens-Illinois, Vidrala, and Ardagh. This model reduces competitive threats. Building new factories requires significant investments (around €100 million) and faces market saturation.

Current Situation and Outlook

In 2023, glass packaging sales in Europe declined by 12% in tons due to inventory corrections accumulated by customers in previous years. However, this is expected to be a temporary setback, with a recovery anticipated starting in 2024.

Despite the decline in unit sales, Verallia offset the impact through price increases in 2022 and 2023, helping to mitigate inflation-related costs and rising natural gas prices. The company has hedged 85% of its gas exposure using financial instruments. Nonetheless, first-half 2024 revenue decreased by 17%, and net income dropped by 60%, partly due to currency depreciation in Argentina.

Financial Indicators

• Moderate Debt: With key maturities in 2028 and 2031, at fixed interest rates of 1-2%.

• Net Margin: 10%

• ROCE (Return on Capital Employed): High and consistent.

• P/E Ratio (PER): Around 6.5, based on 2023 earnings.

Investment Opportunity

With an estimated intrinsic value of €41 per share for 2024 and €47 for 2028, Verallia offers a potential growth of 76% by 2028 (12% annually). Additionally, it provides an attractive dividend of €2.15 per share (though this could be adjusted to €1.75 in the future).

Conclusion

Verallia is a solid company in a defensive and oligopolistic sector, benefiting from competitive advantages due to the strategic location of its plants and the stability of glass demand. While facing temporary challenges like inventory corrections and currency fluctuations, its dominant position and ability to pass on costs to consumers reinforce its long-term appeal. Recent declines in stock price represent a potential opportunity for investors seeking value in a predictable and profitable environment.

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