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Smurfit Kappa rises 2pc as Davy hikes price target to €24 per share

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Smurfit chief executive Gary McGann. Photo: Mark Condren

Smurfit chief executive Gary McGann. Photo: Mark Condren

Smurfit chief executive Gary McGann. Photo: Mark Condren

DAVY Stockbrokers has raised its share price target for packaging group Smurfit Kappa to €24, citing the company's new capital allocation strategy as value-enhancing for shareholders.

Shares in the company were 2pc higher by lunchtime yesterday.

Davy said that strong cash generation has been one of the "main reasons" to invest in Smurfit Kappa.

"Over the past five years, however, investors have had to rely on the pay-down of debt – and the consequent accretion to equity – in order to benefit from this cash," said the broker.

Davy added that shareholders will benefit from a new capital allocation strategy at the group.

Smurfit Kappa has pledged to return capital to shareholders if it doesn't complete any acquisitions.

Last week, Smurfit Kappa chief executive Gary McGann said that his preference would be to make acquisitions rather than return capital directly to shareholders.

The company has boosted its final dividend by 50pc as it reported a 22pc rise in fourth quarter earnings before interest, tax and depreciation (EBITDA) to €291m, as revenue in the period climbed 11pc to €2.03bn.

Davy reckons that post dividends and capital expenditure, that Smurfit Kappa will generate almost €860m in cash flow over the next three years.

"This, combined with excess cash balances, could facilitate mergers and acquisitions activity or a share buyback programme in excess of €1bn," it predicted.

The broker estimates that M&A activity could add €2.50 to the current share price, while a buyback programme could add €3.70 per share.

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