Nordic Credit Rating (NCR) said today that it had assigned a 'BBB-' long-term issuer rating to Norway-based carton packaging producer and distributor Elopak ASA. The outlook is stable. An 'N3' short-term rating was also assigned. We expect senior unsecured bonds to be issued by the company to be rated in line with the 'BBB-' long-term issuer rating.
Rating rationale
The long-term issuer rating reflects Elopak's solid position in the European carton packaging market, geographic diversity and its diverse customer base. It also reflects the company's improved credit metrics and moderate financial leverage. In addition, our assessment of the operating environment is positive, reflecting increasing demand for sustainable products and a likely transition to carton packaging from plastic.
The rating is constrained by Elopak's relatively small size in relation to its main peers, Tetra Pak and SIG Group AG (SIG). This is reflected by the company's relatively small share of the aseptic carton packaging market, which accounts for the bulk of the wider market for carton packaging of liquid products. The rating is also constrained by the cyclical nature of the raw materials market, though this is partly offset by contract stipulations and pricing mechanisms.
Stable outlook
The outlook is stable, reflecting our expectations that Elopak will maintain its current market position in Europe while growing in new markets. In addition, it reflects our belief that Elopak will maintain stable operating margins and be committed to the company's medium-term leverage target of 2.0x (excluding off-balance-sheet financing). The outlook also takes into account the sustainability aspects of and growing potential for carton packaging of liquids.
We could raise the rating in response to NCR-adjusted net debt/EBITDA sustainably below 2.0x or NCR-adjusted EBITDA/net interest sustainably above 13x and improved operating efficiency, reflected in an NCR-adjusted EBITDA margin sustainably above 15% over time. We could also raise the rating to reflect a noticeable shift towards the use of carton packaging and an increasing share of the liquid packaging market.
We could lower the rating to reflect NCR-adjusted net debt/EBITDA above 3.0x and NCR-adjusted funds from operations/net debt below 20% over a protracted period. We could also lower the rating in response to increased substitution risk from alternative packaging solutions or loss of key customers, or to reflect increased risk appetite, indicated by increased dividend pay-outs or a more aggressive acquisition strategy.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N3 |
| Senior unsecured issue rating: | BBB- |
Contacts:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.