Packaging and office products group DS Smith not only reported a strong performance, but management outlined a new strategy. The group will focus on recycled packaging, where it's the leader in key markets, including the UK and France. It's also the majority supplier to several major retailers, which are increasingly looking to corrugated packaging - for its ease of demonstrable recycling and greater efficiency through being "retail-ready".
French packaging company Otor, which DS Smith acquired in September, is just the type of business the group wants to emulate, according to finance director Steve Dryden. He described Smith's return on capital employed (ROCE) of 10.9 per cent as "not good enough". Mr Dryden is targeting 12 to 15 per cent, which compares with Otor's 12.8 per cent.
The group will reduce paper manufacturing that doesn't support packaging, which Mr Dryden estimates will reduce tonnage by about a quarter over the next three years. The input costs of paper and energy increased sharply, but the group recovered most of these increases from customers. Management is also targeting medium-term annual cost savings of £10m, at a cash cost of some £10m.
Evolution Securities expects pre-tax profit of £92.5m for the full-year, giving EPS of 15.6p.
| DS SMITH (SMDS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 198p | MARKET VALUE: | £858m | |
| TOUCH: | 197-198p | 12-MONTH HIGH: | 202p | LOW: 103p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 123p* | NET DEBT: | 65% | |
| Half-year to 31 Oct | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.02 | 34.2 | 6.0 | 1.5 |
| 2010 | 1.17 | 40.2 | 6.6 | 2.0 |
| % change | +15 | +18 | +10 | +33 |
Ex-div: 26 Jan Payment: 1 Mar *Includes intangible assets of £336m, or 78p a share | ||||
