A fortnight prior to release of these full-year figures, DS Smith (SMDS) announced that it was acquiring Spanish rival Europac for an enterprise value of €1.9bn (£1.66bn). The acquisition promises to strengthen the packaging heavyweight's supply chain, certainly a plus point given the volatility of kraftliner and recycled paper prices over the past 18 months or so. Although the deal will be partly funded by a rights issue, the group expects to have net debt to cash profits of “less than 2.5 times by the end of the current financial year”. Although well short of the 3.25 multiple governing financial covenants, there will be intensified focus on the ability to generate adequate operational cash flows to support financing and shareholder returns.
The signs are reassuring. Organic sales volumes were up 5.2 per cent, with underlying top-line growth split evenly between acquired assets and organic revenues. More importantly, the group margin remained stable year on year, largely thanks to efficient pass through of input price rises. A net cash outflow of £652m reflected M&A activity, including the strategically important move into the US market through the deal to acquire Interstate Resources. However, while free cash flow was down on FY2017 at £204m, it proved sufficient to cover dividends.
Ahead of these results, JPMorgan forecasted adjusted EPS of 38.3p for the April 2019 year-end.
| DS SMITH (SMDS) | ||||
| ORD PRICE: | 556p | MARKET VALUE: | £5.97bn | |
| TOUCH: | 555-8-556.2p | 12-MONTH HIGH: | 583p | LOW: 440p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 22 | |
| NET ASSET VALUE: | 196p* | NET DEBT: | 80% | |
| Year to 30 Apr | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 4.04 | 167 | 15.3 | 10.0 |
| 2015 | 3.82 | 200 | 16.6 | 11.4 |
| 2016 | 4.07 | 201 | 17.7 | 12.8 |
| 2017 | 4.78 | 264 | 22.1 | 15.2 |
| 2018 | 5.80 | 292 | 24.9 | 14.7 † |
| % change | +21 | +11 | +13 | -3 |
| Ex-div: | 4 Oct | |||
| Payment: | 1 Nov | |||
| *Includes intangible assets of £2.04bn, or 190p a share. †The full-year dividend of 9.8p will be payable to those shares issued under the proposed July 2018 rights issue. | ||||
