Thanks John. I have been reviewing SMDS in the context of its main packaging rivals Mondi MNDI, Smurfit Kappa SKG and Mayr Melnhof MMK (listed in Austria) which seem to be the other sector leaders in Europe.
Alongside distribution and payment services the packaging sector seems one destined to benefit from the ongoing momentum towards online ordering. These four companies have achieved scale and are fighting it out for sector dominance. MNDI perhaps slower to shift away from plastic and closing factories, and has just lost its CEO to MMK or was he pushed, there is a story as yet untold here.
Of these big four SMDS pays the best dividend. The sp hiatus in 2018 was due to a £1B rights issue and £500M borrowing in order to buy Europac. The plan to sell off its plastics division to Olympus Partners announced last March would have yielded £400M+ net proceeds which should have improved the debt position already, for some reason I can’t find an rns to confirm completion of the transaction expected by the end 2019. Curiously Europac seems still to be involved plastic packaging but SMDS have been positive about its integration and synergies (cost savings).
The latest update from SMDS in early December was pretty good, confident about volume growth and record profits in H1 but hints at competitive price pressures in the US, and some analysts think the momentum from online ordering has eased … the dividend keeps advancing though.
In that context it seems a shame to worry too much about the debt, in September SMDS was able to issue a 7-year E600M note at just 0.875%. which is trifling when the business is operating at gross margins of 11%.
Except that it does not disguise the net debt is high, at over 2 x gross earnings, and a few shorters have been increasing their bets against perhaps speculating if the sale of Plastics has hit a snag. An update in the run in to financial year end (reset to 30 April ?) might be coming in early March, not sure the financial calendar is confusing.
Personally I think SMDS is the pick of the bunch, the entry price is all important though because the sp is volatile 310-390p.
SKG reports 5 Feb, MNDI 27 Feb which will provide a sector backdrop.