Smurfit Kappa boxing clever as shares jump to near five-year high
Published 07/02/2013 | 04:00
SHARES in Smurfit Kappa rose close to a five-year high yesterday after the company reported good results for 2012 and stable demand for its paper products.
The Dublin-based maker of container board said full-year pre-tax profits jumped 11pc, buoyed by strong demand and increased exposure to high-growth markets such as Mexico. Sales were flat at €7.34bn.
Smurfit Kappa chief executive Gary McGann attributed the solid performance to the "integrated nature of our business" which spans the globe.
Europe's biggest container board and corrugated packaging producer has taken €500m in costs from the business over the past five years and recently sold bonds to raise $400m (€296m). It has also expanded, snapping up Mexican packaging group OOCG and two corrugated plants and a paper mill in the US for €260m late last year – the first big acquisition since 2005.
"We acquired the business at a sweet spot in terms of timing. It's a good fit," Mr McGann said.
Smurfit, formed through the 2005 merger of Jefferson Smurfit and Kappa Packaging, has for the past four years focused on paying down debt which stood at €2.79bn in December. Criticised for miserly dividends in recent years, the company signalled that it will be more generous in future and hiked this year's dividend by a third.
"This is our second-largest result since 2007 and this performance reflects the benefit of our continuing focus on operating efficiency," said chief financial officer Ian Curley."
He added that the company would continue to lower its debt, aided by the proceeds of continued strong growth in sales to European customers.
Analyst Barry Dixon at Davy Research said the results should reassure investors that Smurfit would not pursue an aggressive acquisition strategy and would instead focus on its stated objective of following a "progressive dividend policy".
Mr Dixon said he was now "very comfortable" with forecasts for 2013, writing in a note to investors: "Now that the balance sheet is under control, the private equity 'overhang' cleared and the stock paying a 3pc dividend yield, there is no apparent reason why SKG should continue to trade at a 30pc valuation discount to the sector."