Smurfit to save €18m a year through €500m bond offering
Packaging giant Smurfit Kappa is likely to save over €18m a year in interest payments when it completes a €500m bond offering, Davy Stockbrokers reckons.
Smurfit Kappa said yesterday that it plans to raise the €500m in senior notes in order to help fund the redemption of €500m of existing notes that were issued by the group in 2009 and which are due for repayment in 2019. Those existing notes carry a coupon, or interest rate of 7.75pc.
Davy Stockbrokers said it expects Smurfit Kappa to be able to raise the fresh €500m in notes at a coupon of below 4pc.
"While no pricing data is available for the new issue, a BB+ credit rating like Smurfit Kappa should be able to raise seven-year money at sub-4pc," the broker said in a note.
"Assuming a coupon of 4pc implies annualised interest cost savings of €18.75m, or circa 6 cent per share on a post-tax basis. The benefit should accrue to the shareholder."
Davy Stockbrokers also said Smurfit Kappa continues to trade at a 25pc discount to peers and at 10 times forecast 2014 earnings. "Even applying this sub-sector multiple to the post-tax interest saving implied by the latest refinancing implies incremental equity value of circa 60 cent per share," it said.
"Smurfit Kappa continues to demonstrate operational and financial prowess in managing its business, which makes the valuation discount to the sector even more difficult to understand."