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DS Smith profits from packaging boom

DS Smith continued to build its presence in the European corrugated packaging market as a better sales mix limited the impact of a weakening euro.
December 11, 2015

DS Smith's (SMDS) mission to become a major provider of high-quality recycled packaging for consumer goods is well on track. Strip out a £12m currency headwind and various restructuring expenses, and operating profit soared 12 per cent in the six months to October.

IC TIP: Buy at 405p

DS Smith's acquisition of Duropack, Lantero and Cartonpack offered a helping hand. These three businesses boosted the group's exposure to packaging-hungry southeastern Europe and Iberia and helped grow its market share across the continent to about 16 per cent. They have also integrated well, providing synergies ahead of initial expectations. Management hopes the post-period acquisition of a corrugated packaging business in Turkey will replicate this success.

Yet there was also plenty of organic growth. The group's corrugated volumes rose 3.1 per cent during the period on an organic basis, beating the targeted rate of 1 per cent above GDP. Sales were achieved at a higher margin, too. Adjusted return on sales rose 50 basis points to 9.4 per cent, as the uptake of value-added services offset the effect of competitive pressures in the UK and western Europe and the cost of integrating acquisitions in Spain.

Broker JPMorgan Cazenove slightly nudged up its adjusted EPS forecast for the year to April 2016 to 26.6p, from 24.5p in FY2015.

DS SMITH (SMDS)
ORD PRICE:405pMARKET VALUE:£3.8bn
TOUCH:404.7-405.2p12-MONTH HIGH:424pLOW: 288p
DIVIDEND YIELD:2.9%PE RATIO:29
NET ASSET VALUE:111p*NET DEBT:87%

Half-year to 31 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141.9712310.23.7
20151.95917.64.0
% change-1-26-25+8

Ex-div: 31 Mar

Payment: 3 May

*Includes intangible assets of £960m, or 102p a share