Thursday 26 April 2018

Results fuel big jump for Smurfit Kappa stock

John Mulligan

John Mulligan

Shares in Irish packaging group Smurfit Kappa soared as much as 12pc at one point yesterday after the company reinstated a dividend payment and struck a favourable debt-refinancing deal.

The stock was also buoyed by better-than-expected fourth-quarter results and news that ratings agency Moody's was poised to upgrade a large chunk of Smurfit Kappa's stock.

Revenue at the packaging company -- which is Europe's biggest maker of cardboard boxes -- rose 4pc to €1.82bn in the fourth quarter, while pre-exceptional earnings before interest, tax, depreciation and amortisation (EBITDA) fell 5pc to €245m.

On a full-year basis, revenue was up 10pc at €7.35bn, while pre-exceptional EBITDA was 12pc higher at €1.01bn. Its Latin American operations delivered a strong performance.

The group also reduced its net debt by 12pc, or €358m, to €2.75bn at the 2011 year end -- a better-than-anticipated position.

Chief executive Gary McGann, citing what he said was the positive long-term outlook for Smurfit Kappa, said reintroducing dividend payments that had been halted in 2009 now made sense. It's to pay a final 15 cent per share dividend in respect of the year.

Speaking to the Irish Independent, Mr McGann said that the company was capable of delivering strong cash flows and that it had been actively deleveraging.

He added that "despite all the vagaries" of the economic and industry environment in recent years, the company had been able to keep a "clear focus" on its agenda.

He also said that the group would beat its own forecast of eliminating €150m in costs from the business by the end of 2012 and that further opportunities for additional reductions would be examined. However, he said he "hadn't cast a number in stone yet" for how far beyond the €150m savings could be achieved.

There had been a general sense in the investment community that Smurfit Kappa would face challenges refinancing its debt pile. The first repayment on current borrowings was due at the end of 2013.

But Smurfit Kappa has secured the backing of its main lenders to extend and amend its existing senior facility. That will extend the first maturity to fall due to June 2016 and another to March 2017.

The fee payable by Smurfit Kappa for extending the maturities will be about €10m, while the impact is effectively interest neutral for the group. The changes still have to be approved by the majority of lenders.

Barry Dixon at Davy Stockbrokers said the proposed refinancing was "very attractive" and added that there was now no reason why Smurfit Kappa stock couldn't re-rate to a more "appropriate multiple".

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