- Positive box volume growth
- Input costs are on the rise
Online shopping and greater environmental awareness could fuel growth at DS Smith (SMDS) in spite of rising energy prices and logistical challenges. In a pre-close trading update for the half year ending 31 October 2021, the paper-based packaging company noted positive box volume growth and good cost recovery through higher prices, concluding that its financial performance remains in line with expectations.
DS Smith’s shares struggled in the early stages of the pandemic, hit by rising input costs, the closure of non-essential businesses, and falling box prices. However, the popularity of e-commerce - which appears undented by the reopening of physical shops - could result in high activity levels over the festive period, while the company’s focus on sustainability is increasingly appealing in the current climate.
There are still challenges. Input costs such as energy, old corrugated containers and logistics have increased steeply over the past six months and are likely to remain volatile. However, DS Smith said long-term hedging arrangements has given it ‘significant protection’ from the recent price rises, and input cost inflation has been offset by the rising price of packaging.
DS Smith recently completed the €50m (£42m) sale of its De Hoop paper mill, and has funnelled the proceeds into two additional packaging manufacturing sites in Italy and Poland, where operations are due to start in Q4 of this financial year. More than half of their capacity has already been pre-sold.
The last six months may not break any records, but expansion plans combined with changing consumer attitudes suggest the outlook is positive. Buy at 388p.
