Thursday 14 December 2017

Shares in Smurfit Kappa fall despite 26pc jump in profits

John Mulligan

John Mulligan

Third-quarter profit at packaging group Smurfit Kappa jumped 26pc to €243m as the company benefited from more buoyant market conditions and price increases for its products.

Sales at the firm for the period rose 12pc to €1.7bn, while the company also reduced its net debt by €168m in the quarter.

Releasing the results yesterday, chief executive Gary McGann was also upbeat on the current quarter's trading.

"Good market conditions, combined with higher input costs, underpin continued corrugated price recovery," he said.

"The group's performance also reflects the benefits of sustained demand growth across all its major markets."

Within Europe, Smurfit Kappa said there was "continued steady recovery of underlying demand" for packaging products across its markets, but particularly in the UK, Germany, Italy and Scandinavia.

Guidance

Mr McGann reaffirmed Smurfit Kappa's guidance that earnings before interest, tax, depreciation and amortisation (EBITDA) will rise by about 20pc for the current financial year.

Mr McGann added that combined with ongoing cash-flow generation, the EBITDA growth will lead to a further reduction in Smurfit Kappa's net debt-to -EBITDA ratio. The EBITDA margin rose to 14.3pc in the quarter -- up from 12.7pc in the 2009 third quarter.

The company also intends to have taken at least €300m in costs out of the business since 2008, by the end of this year.

Investment bank Goldman Sachs recently said it is forecasting earnings before interest and tax growth at Smurfit Kappa of 27pc between now and 2012, and 22pc between now and 2013 -- the highest growth levels among peers in the paper and packaging industry.

But shares in the company, which is 45pc owned by private equity groups, including Madison Dearborn, CVC and Cinven, fell yesterday by 3.6pc to €7.78, despite the third-quarter figures being ahead of some analysts' expectations. The stock has fallen from about €8.21 last week. Mr McGann said the risk of having its assets in Venezuela nationalised had increased since President Hugo Chavez lost his two-thirds majority in parliamentary elections. The company's shares fell the most in eight weeks. "The nationalization of foreign-owned companies by theVenezuelan government has intensified lately and would suggest that the risk of similar such action against SKG's business in Venezuela has heightened," Mr McGann said.

Analyst Barry Dixon at Davy Stockbrokers said he was likely to increase his full-year EBITDA figure for Smurfit Kappa to about €908m from €897m, representing over 22pc growth on the company's 2009 result.

Davy has a €12 price target on the stock.

Irish Independent

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