Business Irish

Thursday 27 April 2017

Smurfit upgrade as prices rise

Joe Brennan

SMURFIT Kappa should continue to hike the price of cardboard boxes into the second half of this year, according to influential brokerage Bank of America Merrill Lynch, as it upgraded the stock to outright 'buy'.

In a note to clients, BoA Merrill Lynch said it expected margins to recover over the next 12 months as cardboard box producers manage to pass on higher input costs to customers.

The broker said Smurfit Kappa, which has a €3bn-plus net debt pile, will be able to use its additional cash flow "to delever its balance sheet rapidly and execute its long-term strategy of acquiring and integrating smaller competitors".

It said recent results from sector players such as SCA and Stora Enso suggest that a recovery in demand for paper packaging products could prove better than had been expected.

"Pricing is rising in most of Smurfit's key business areas, while cost pressures are levelling off," it said.

With the groupscheduled to report first-quarter results on May 7, the consensus among analysts is for it to post a 7pc to 10pc drop in earnings, before picking up as the year progresses.

Irish Independent

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