This time last year, the UK’s packaging giants knew demand was waning but were still enjoying bumper profits due to the high prices they had been charging. Now the situation has caught up with them. DS Smith (SMDS), Mondi (MNDI) and Smurfit Kappa (SKG) have all reported lower box volumes and significantly lower selling prices. This has been partly offset by lower input costs, but profits are still tumbling.
What does 2024 hold for the cardboard trio? It is very difficult for box makers to stimulate demand, so much will depend on how the fast-moving consumer goods (FMCG) and industrial sectors hold up, as well as the state of e-commerce.
Smurfit Kappa and DS Smith both reported some improvements in volumes towards the end of 2023, and their cost management has been impressive. Jefferies is certainly feeling optimistic: “With destocking headwinds over, and the box industry already cycling easier comparatives from Q423, we are encouraged by box volumes having bottomed, with sequential improvement.”
A more sudden change could be coming to the sector, however, in the form of M&A. In September, Smurfit Kappa revealed that it was in merger talks with US-based WestRock (US:WRK) to form a “go-to” packaging giant. Details are still scarce and the merger is far from guaranteed, but if it does go ahead Smurfit Kappa’s premium listing on the London Stock Exchange is set to be cancelled and ‘Smurfit WestRock’ will be listed on the New York Stock Exchange instead.
The announcement could be the start of something bigger, with more sector consolidation expected by many. The lure of cost savings and increased scale might prove powerful in a difficult trading environment.
| NAME | Price (p) | Market cap (£mn) | 12-month (%) | Fwd PE | Yield (%) | Last IC view |
| DS Smith | 289 | 3,926 | -13.3 | 8 | 5.8 | Buy, 306p, 7 Dec 2023 |
| Mondi | 1,461 | 6,941 | 1.6 | n/a | 4.4 | Hold, 1,256p, 4 Aug 2023 |
| Smurfit Kappa | 3,096 | 7,722 | -6.4 | 11 | 4.0 | Buy, 3,048p, 2 Aug 2023 |
