UBS upgrades Smurfit Kappa stock rating and predicts 2012 dividend
Published 07/10/2010 | 05:00
Investment bank UBS yesterday upgraded its rating for stock in Irish packaging group Smurfit Kappa to a 'buy', citing strong demand within the EU for corrugated material and predicting the company could start paying a dividend in 2012.
UBS lifted its 12-month price target to €9.50 from €9.00 and also said it was raising its forecast 2011 earnings before interest, tax, depreciation and amortisation at Smurfit Kappa to €1.1bn. Shares in the company closed 13 cent, or 1.7pc, higher in Dublin at €7.68 having earlier risen by as much as 3pc.
In a note issued by the bank, UBS analyst Myles Allsop said that Smurfit Kappa, although financially leveraged, has a "well structured balance sheet and has consistently delivered strong free cash flow, with earnings more resilient than peers'".
He added that recent developments for Smurfit Kappa were "encouraging".
EU corrugated packaging demand is up 8pc in the first half of 2010, while prices for testliner, which is mainly produced from waste paper and used as lining on corrugated board, climbed 9pc last month.
He also expected Smurfit Kappa's net debt to fall to €2.7bn by the end of 2011, compared to its current €3.3bn level and predicted the firm would begin paying a dividend in 2012.
"We see weaker demand and lower old corrugated container prices as the key risks to the cycle near term," he cautioned.
He added that private equity holders in the company could reduce their stakes in Smurfit Kappa in the coming 12 months.
Private equity groups Madison Dearborn, Cinven and CVC own over 40pc of Smurfit Kappa between them.
Mr Allsop said the poor performance of Smurfit Kappa's shares was in part impacted by the risk perception of the Irish market.
He noted that since January 2007, the ISEQ20 had underperformed the FTSE-100 by 60pc and pointed out that Smurfit Kappa generated less than 2pc of its sales in Ireland.
Smurfit Kappa reports third- quarter figures next month.