The pricing environment might have improved last year, but paper and packaging producers are not out of the woods yet. Indeed, the sector is heavily correlated to global economic activity, so fears of a recession do not bode well for this year's sales.
The weak dollar won't help either, since it favours US exports in an already oversupplied market. And while consolidation is seen as inevitable in this sector, the credit crunch will seriously limit M&A activity. So, despite a modest share performance last year, DS Smith might not yet succumb to a takeover bid.
That said, the sector has scope to surprise on the upside. After a tough year in 2007, Rexam, for instance, will benefit from lower aluminium prices which have long weighed on the group's profitability. And while the group has a strong position in mature markets, its expansion in countries such as Russia will help to revive its top-line growth.
| Company name | Price (p) | Mkt val. (£m) | P/E ratio | Div. yld (%) | 12M price chng.(%) | Last IC view |
|---|---|---|---|---|---|---|
| MONDI | 383.25 | 1407.45 | 1.28 | Buy, 428p, 9 Nov 2007 | ||
| REXAM | 406.75 | 2613.73 | 13.2 | 4.77 | -25.09 | Good Value, 503p, 01 Aug 2007 |
| SMITH (DS) | 188 | 739.51 | 10.2 | 4.57 | -8.18 | Fairly Priced, 213p 05 Dec 2007 |
