ii view: Smurfit Kappa profits up

Packaging company Smurfit Kappa pursues productivity plan and ups the dividend by 10%. 

Half-year results 

• Revenue up 4% to €4.62 billion
• Adjusted profit (EBITDA) up 17% to €847 million
• Net debt up 30% to €3.75 billion
• Dividend payment up 10% to 27.9 cents per share

Chief executive Tony Smurfit said:

"The continued execution of our Medium-Term Plan together with our resilient business model allows us to continue to progress and deliver consistently excellent performance. 

We continue to work with our existing customer base, and indeed our new customers, in solving their many business challenges. This includes finding alternatives to less sustainable packaging, helping drive increased sales using paper-based packaging as a merchandising medium, and reducing complexity and costs in their supply chain by leveraging our unique SMART applications.

While macro-economic and political risks remain, SKG continues to be highly confident of another year of progress and delivery."

ii round-up:

Smurfit Kappa Group (LSE:SKG) was founded in 1934, making cardboard boxes and packaging boxes for the Irish market.

Today it employs over 40,000 people in over 30 countries and across more than 300 production sites. 

It owns around 67,000 hectares of forest globally and makes a wide range of papers mainly used for packaging purposes. It also manufactures paper-based packaging and offers recycling solutions to its customers, reprocessing over 6 million tonnes of recovered paper across the globe.

The company reported solid progress in these half-year results. The execution of its productivity or medium-term plan contributed to progress, while its geographical footprint was expanded with acquisitions in Bulgaria, Colombia and Serbia. 

Adjusted profit margins (EBITDA) for both its European and Americas businesses improved, with volumes for each up 2% and 3% respectively. 

ii view:

Smurfit Kappa offers investors exposure to a geographically diverse paper and packaging company. Under its current productivity, or Medium-Term Plan, over €600 million of capital projects have to date been approved. This includes upgrading 13 of its corrugators as well as multiple paper-related 'debottlenecking' projects.

For investors, management strikes a cautious tone in its outlook commentary, pointing to macroeconomic and political risks. But a prospective dividend yield in the region of 4% and covered over 2.5 times by earnings is attractive. So is a forward price/earnings (PE) ratio below the three and 10-year averages. 

Positives: 

• Only large-scale pan-regional player in Latin America
• Pursing a productivity improvement plan

Negatives:

• Italian Competition Authority investigating paper and packaging market
• Net debt increased

The average rating of stock market analysts:

Buy