DS Smith (SMDS) broadened its range of capabilities in the first half, while an increase in corrugated box and plastic volumes countered pricing pressures and an unfavourable business mix. Revenues, up 7 per cent at constant currencies, received a significant boost from acquired businesses as the recycled packaging group continued to take advantage of a fragmented marketplace. Despite the initial dilutive impact of recent acquisitions, DS Smith managed to exceed the target rate for return on average capital employed, showing good working capital management. The packaging producer also achieved a cash conversion rate of 129 per cent.
Management has identified point-of-sale packaging as a potential growth area, as a growing proportion of consumer decisions are now made in-store, hence the modern spread of promotional packaging found near retail checkout counters. Two specialists in this area, London-based Creo Retail Marketing, and Deku-Pack in Denmark, were acquired during the period. The ability to fulfil customer needs in this space has also been enhanced by the recent opening of a new site in Erlensee in Germany. And the group has announced the proposed acquisition of Parish Manufacturing Inc, a US producer and supplier of bag-in-box systems - a type of container for the storage and transportation of liquids.
The group has forked out around £37m in cash for acquisitions completed during the period, and borrowings of £4m were also assumed. A rise in net debt reflected was linked to non-sterling denominated borrowings, but the group endeavours to match its debt to the currencies in which cash flow is generated. A net debt to cash-profits multiple of 1.9 was actually down slightly from the April year-end. The post-referendum decline in the value of sterling also led to a rise in input costs for old corrugated card, but the overall impact was limited because most of the corrugated packaging the group manufactures is sold in the country in which it is made.
Numis predicts adjusted profits of £436m for the April 2017 year-end, leading to EPS of 31.6p (FY2016: £379m/27p), although the broker anticipates making a 3-4 per cent upgrade.
| DS SMITH (SMDS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 405p | MARKET VALUE: | £3.84bn | |
| TOUCH: | 405p-406p | 12-MONTH HIGH: | 431p | LOW: 329p |
| DIVIDEND YIELD: | 3.3% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 137p* | NET DEBT: | 89% | |
| Half-year to 31 Oct | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 1.95 | 91 | 7.6 | 4.0 |
| 2016 | 2.36 | 146 | 12.3 | 4.6 |
| % change | +21 | +60 | +62 | +15 |
Ex-div: 6 Apr Payment: 2 May *Includes intangible assets of £1.23bn, or 130p a share | ||||
