Time to play Powerflute

Since first being established in 2004 by brothers Dermot and Michael Smurfit, with proceeds from the sale of Jefferson Smurfit, Powerflute has done extremely well from buying struggling companies. While this type of approach can often be difficult to pull off – indeed Powerflute’s own acquisition of Scheufelen in 2009 proved something of a disaster – significant potential has been realised from the strategy over the years.

Their first deal saw them pounce on Powerflute at a knockdown price, just after it had lost significant volumes from its largest customer. By cutting headcount and winning new clients, within 18 months the company went from making heavy losses to a decent profit.

Prospects look strong for the Powerflute business, which specialises in semi-chemical fluting activities, which offers important packaging solutions to growing packaging markets for fruit and vegetables, and high-value industrial goods. Thanks to its access to Scandinavian birch wood, Powerflute is one of only three companies able to provide such packaging.

The most transformative deal to date was the E81m (£65m) acquisition of Corenso at the end of 2014. With the maker of industrial-strength cardboard tubes on board, Powerflute instantly became a leader in heavy-duty packaging applications, while doubling its size and profitability in the process. While the transportation of industrial goods may come under temporary fire from a slowing global economy, the long-term outlook is encouraging and brokers continue to increase EPS forecasts (see chart above).

Net debt nearly halved to E37.1m in 2015 and broker Liberum thinks the company could be cash neutral by next year, which would give it about E150m to spend on acquisitions, assuming net-debt-to-cash-profit of 2.5 times.