One Packaging Business Stock Of Interest - DS Smith PLC

  • Feb 13, 2019 GMT
  • Team Kalkine
One Packaging Business Stock Of Interest - DS Smith PLC

Overview

DS Smith PLC (LSE: SMDS) is a British multinational packaging company based in London, United Kingdom. In the 1940s, it was started in East London by the Smith family. The company is a prominent provider of corrugated packaging with operations in plastic packaging and recycled paper as well. The company has expertise ranging from design to production and supply to recycling, providing not just a part but the whole solution. The group also designs and manufactures certain types of plastic packaging. Business operations spread across 37 countries with total headcount around 32,000 employees.

Product Portfolio entails the following

  • Packaging materials
  • Promotional materials
  • Corrugated pallets
  • Sheet feeding
  • Machine systems
  • Cushioning materials

Geographical Segments

The company operates globally across UK, Western Europe, DCH, Northern Europe, Central Europe, Italy and North America. According to the latest annual report, the group generates most of its revenue from Western Europe, closely followed by Central Europe and Italy. Recycling and paper are an integrated part of the company’s supply chain operations with the plastic packaging business spread globally. The company has manufacturing sites in the USA, Europe and the Asia Pacific and sells its product offerings globally to all major global giants, like Amazon.

Recent Acquisition under Business  Strategy

Recently, the company growth surged as fueled by a series of acquisitions in mainland Europe and the US. In June 2018, acquisition of Europac was announced by the company. Europac is in the paper and packaging business, listed on the Spanish stock exchange. The company expanded its business in Iberia and France with this acquisition. The acquisition process was completed in January 2019.

Financial Performance for H1 2018/2019

Group Revenue on a constant currency basis increased by 16% as compared to the corresponding prior period of last year, with organic growth contributing 6%. Adjusted operating profit grew by 32% YoY, with a £1 million headwind from currency translation.

In the UK, revenue increased by 4% YoY while adjusted operating profit grew by 7% YoY. In Western Europe, revenue increased by 8% from last year while adjusted operating profit rose by 5% YoY. In the DCH and Northern Europe, revenue increased by 1% YoY while adjusted operating profit grew by 31% YoY.

 In Central Europe and Italy, revenue increased by 15% compared to last year while adjusted operating profit rose by 19% YoY. In North America, revenue increased by +210% from last year while adjusted operating profit rose by +280% YoY. Thus, the group performed well across major geographies.

financial performanceFinancial Performance (Source: Company Reports)

In H1 2018/19, total revenue increased to GBP 3,255 million from GBP 2,842 million as reported in H1 2017/18. Return on sales and EBITA metrics also surged in H1 2018/19 when compared with the previous year.

Key Ratios

key parameters

Key Parameters and Ratios (Source: Company Reports and Thomson Reuters)

 

Challenges

The company has considerably expanded its footprint globally with strategic acquisition initiatives. Though this provides several opportunities to grow, the risk of any failing venture also increases. Slowing worldwide economic growth may lead to weak consumer demand across Eurozone. The consumer also faces significant threats from Brexit.

The company must adapt and make several operational changes amid global uncertainties. The uncertainty from Brexit has led to curtailing of expansion plans in its home market. It can lead to a pessimistic debt market outlook, which can increase the interest costs for the company and make it difficult to raise more debt. Large fluctuations in paper demand and supply mechanics can expose the company to significant risks. The company’s weak competitive position in the foreign market may also lead to a decrease in the sales front.

 

Stock Price Performance

The stock is currently trading at GBp 349.07 as at February 13, 2019, post-mid-day trading; and it has fallen by more than 20% in the last one year and over 30% in the previous six months. The 52-weeks’ low is GBp 285.83, and corresponding high is at GBp 542.45.

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