Friday 19 January 2018

Smurfit Kappa chief dismisses stock sell-off as earnings jump

Gary McGann blames massive sales since April on a failure by investors to 'grasp strong fundamentals within the company'

John Mulligan

A massive sell-off of stock in packaging group Smurfit Kappa in the past couple of weeks has partly reflected a failure to grasp strong fundamentals within the company, its chief executive Gary McGann claimed yesterday.

Speaking to the Irish Independent as Smurfit Kappa recorded a 20pc jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to €264m in the second quarter and a 10pc rise in revenue to €1.86bn, Mr McGann conceded that many investors remained uncomfortable with both cyclical and leveraged companies, but insisted they had ignored "massive fundamentals".

Share price

Prior to the release of yesterday's results, shares in Smurfit Kappa had plunged over 30pc since July 22 and 45pc since a peak this year in April of €9.57. They shed 2.4pc yesterday to close at €5.05.

Mr McGann said that Smurfit Kappa, which is Europe's leading producer of cardboard packaging products, had achieved a number of goals, including an improved net asset base and greater efficiencies in the past couple of years.

"Some people are talking about whether this is the top of a cycle or a break in the cycle, but this is not a normal industry cycle," he said.

The company's shares have been hit hard amid recent global financial turmoil, although Mr McGann said that demand, as far ahead as the group had visibility, had remained strong, particularly in key markets such as Germany.

He added that while domestic demand within countries it operated in was important, a significant amount of the packaging it manufactured in countries including Germany and the Netherlands was destined for use in exports.

"It's one of the great advantages of being big and diverse," he said regarding turbulence in Europe. "You're not immune from it, but you can mitigate against it."

The company's operations in Latin America performed strongly during the first half, accounting for €61m of group EBITDA in the second quarter, up 21pc year-on-year.

Debt pile

Smurfit Kappa said it reduced its debt pile by 9pc in the year to the end of June to just over €3bn. The company expects to reduce the figure to at least €2.85bn by the end of the year, but analysts believe the likely year-end figure will be slightly lower.

Smurfit Kappa experienced increased cost pressure during the second quarter, while in the first half of the year total raw material and input costs rose by €300m for the group.

Quarter-on-quarter, recovered fibre costs at the group were 12pc higher and energy costs were up 3pc.

The company managed to raise its corrugated prices by 4.5pc in the first six months of the year, including a 2pc rise in the second quarter. Mr McGann said that "another couple of percentage points" in terms of price rises could be passed on this year.

Robert Eason, an analyst at Goodbody Stockbrokers, described the results as "solid".

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