The Jensen Investment Team Adds Ball Corporation to the Quality Growth Strategy
The Jensen Investment Team recently added Ball Corporation (BALL) to its Quality Growth portfolios. Ball Corporation manufactures and sells aluminum beverage cans, aluminum aerosol cans, and a variety of aerospace products including satellites, sensors, and cameras for unmanned aerial systems. Aluminum beverage cans account for approximately 80% of the company’s sales. Ball Corporation and its two main competitors, Crown Holdings Inc. and Ardagh Metal Packaging, dominate the aluminum beverage can market with a combined share of around 65%.1 Of the three, Ball is the largest, with a market share in excess of 40% in North America, Central America, Europe, and South America.2 Ball’s customers in this business include well-known beverage producers such as AB InBev, Molson Coors, PepsiCo, Coca-Cola, and Red Bull.3
Owing to their attractive environmental profile, aluminum beverage cans are currently taking share from both plastic and glass containers. The collection and recycling of aluminum is higher than any other packaging material because it is infinitely recyclable and does not degrade. Seventy-five percent of all aluminum ever produced is still in use today,4 and the average aluminum can manufactured contains 73% recycled content.5 The same cannot be said for other substrates, such as plastic. Only 10% of all plastic ever produced since 1950 has been recycled,6 and most of the recycled content is used to make down-cycle products, such as shoes and carpet fibers, the vast majority of which are ultimately landfilled or discarded as pollution.
Ball Corporation is run by a well-tenured management team executing a strategy consisting of building new plants, adding production lines to existing facilities, developing new products, and expanding geographically. In our opinion, significant barriers to entry exist in the aluminum beverage can business. These include three-to-five-year contracts with customers, high contract renewal rates, significant economies of scale, and the time and capital required to construct new beverage can plants. Given these factors and our estimate of Ball’s stock valuation, we are pleased to add the name to our portfolios.
1 Source: Jensen Investment Management.
2 Ball Corporation. “2020 Virtual Investor Day Presentation.” October 6, 2020. https://investors.ball.com/news-and-presentations/presentations/presentation-details/2020/Ball-Corporation-2020-Investor-Day-Slides/default.aspx.
3 Source: Jensen Investment Management.
4 Ball Corporation. “2020 Virtual Investor Day Presentation.” October 6, 2020.
5 The Aluminum Association. “The Aluminum Can Advantage: Sustainability Key Performance Indicators.” November 2021. https://www.aluminum.org/canadvantage.
6 Ball Corporation. “Annual Report on Form 10-K.” February 16, 2022. https://investors.ball.com/financials/sec-section-16-reports/sec-filings-details/default.aspx?FilingId=15577552.
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