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Investing.com -- Moody’s Ratings has upgraded the rating of SIG Group AG, a Swiss-based global aseptic carton packaging company, to Baa3. This investment grade rating applies to both long-term local and foreign currency issuer ratings, which were previously at Ba1. Simultaneously, the Ba1 long term corporate family rating and Ba1-PD probability of default rating have been withdrawn by Moody’s.
In addition, the backed senior unsecured rating of SIG Combibloc PurchaseCo S.a r.l.’s €550 million notes, due in 2025, has been upgraded to Baa3 from Ba1. The outlook for both SIG Group and SIG Combibloc PurchaseCo has been revised to stable from positive.
The revised rating reflects SIG’s consistent revenue growth in the mid-single digits and an EBITDA margin around 25%. This growth is supported by the company’s improved product and geographic mix. Moody’s expects SIG’s EBITDA growth to be around 6% in 2025, which will drive a deleveraging path towards 3x, as measured by Moody’s adjusted debt to EBITDA, over the next 12-18 months.
SIG’s business model involves providing SIG-manufactured filling machines to customers and making long-term contractual arrangements to supply packaging materials. The company’s significant scale as a top-two operator globally in somewhat concentrated markets is also factored into the rating. Additionally, the company’s diversification through acquisitions into chilled cartons through Evergreen Asia and into bag-in-a-box and spouted pouches through Scholle IPN, respectively, is taken into account.
Despite its strong position, SIG faces risks from potential volatility in prices of certain raw materials like aluminum and general pressure from cost inflation. The company’s free cash flow generation is limited due to large dividend distributions and heavy capital investments. SIG also faces a more challenging growth environment in the mature European market.
SIG’s liquidity is considered good, supported by its total unrestricted cash balance of €288 million at the end of 2024 and €398.4 million undrawn under its senior unsecured revolving credit facilities. The company is expected to draw from the credit facilities to meet inter-period cash needs, including for dividend payments and working capital.
On the environmental, social, and governance (ESG) front, SIG has a ESG Credit Impact Score of CIS-3. This score reflects the company’s exposure to risks primarily around tightening regulations of carbon emissions and waste and pollution. The company has a good track record of meeting these regulations and is expected to continue doing so.
The stable outlook reflects the expectation that SIG will continue to grow its earnings and improve its credit metrics, despite a challenging macroeconomic environment. Positive pressure on the rating could come from a strong operating performance with an EBITDA margin around 25%, a Moody’s adjusted debt to EBITDA falling sustainably below 2.5x, and a substantial and consistently positive free cash flow generation. Conversely, negative pressure could develop if SIG’s operating performance deteriorates or its liquidity significantly worsens.
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