Some regard DS Smith as a desperately dull packaging company. Corrugated packaging materials are not the most exciting subject for a dinner party conversation, admittedly, but investors have reason to thank the company’s stability. The shares have gone from little more than £1 five years ago to 412½p, up another 25½p on a set of results that hardly puts a foot wrong.
DS Smith has achieved this by setting rigorous targets and then hitting them, and by finding packaging companies across Europe that are in a position to be bought and integrating them. There are structural drivers to growth, such as the switch to convenience stores and internet shopping.
When you receive something ordered online, big chunks of the box are often empty. Internet retailers waste large amounts of money on posting air around the country that could be saved by using the smarter packaging produced by DS Smith. Convenience stores want goods in retail-ready boxes that can simply be slotted into place, saving money on shelf stacking.
Companies producing consumer goods supplying different countries across Europe want to deal with the same supplier in each of these. DS Smith has been building its network across the Continent with those deals.
The figures to the end of March show every one of those targets hit or beaten, including organic volume growth, return on sales, debt levels and operating cashflow. DS Smith spent €600 million on acquisitions last year, not an exceptional one in this regard.
Some have worried that a looming oversupply of containerboard in Europe may hit margins and see progress on one of those targets go into reverse, but Miles Roberts, the chief executive, says that any impact will be minimal. Another concern is that the supply of acquisition targets may dry up or the availability of cheap finance for rival bidders may push prices up. The company says that it has a decent pipeline of potential deals and its record speaks for itself.
I tipped the shares at the start of the year for that reliability and prospects for further growth. They are ahead of the price then and sell on less than 14 times earnings for this year. This is still one to buy for the long term.
My advice Buy
Why DS Smith has hardly put a foot wrong, organic growth combining with acquisitions, and its record should speak for itself
BGEO Group
The stock market has over the past few years managed to accumulate three companies whose operations are in the Caucasian state of Georgia. Georgia Healthcare speaks for itself. The two others are banks, TBC and BGEO, the holding company for the Bank of Georgia, out of which the healthcare business was spun.
The country, apparently officially classed as a frontier market, a notch down from emerging, has its own stock market in the capital, Tbilisi, but anyone wanting to raise serious amounts of new funds needs to come to London.
Georgia is one of the former Soviet satellites most advanced down the free markets route, with large amounts of the economy privatised. BGEO has its own private equity operation, which announced a deal yesterday to buy the 75 per cent it does not own of a water utility serving a third of the population.
The bank itself, owned by the usual City institutions, is a proxy investment on continuing GDP growth in Georgia and further conversion from a cash economy to one where people use banks to store their salaries rather than keeping money in dollars under the mattress. The shares stumbled a bit last year as the currency, the lari, was devalued but have recovered.
Up 55p at £26.30, they sell on a respectable nine times earnings. The 1.5 times premium to assets looks a bit racy but reflects those growth prospects. A speculative punt on a growing but politically risky market then, but don’t bet the farm.
My advice Buy
Why Highly speculative bet on growing economy
Weir Group
In 2010 it probably looked like a good idea to get into renewable energy, and companies that supply the industry in Spain and North America. Six years later, with the oil and gas and mining sectors that provide your main customers cutting their budgets, it looks like a luxury. Weir Group, maker of pumps and valves, has pledged to sell non-core assets worth £100 million this year, as well as making cost cuts of £160 million, and its two renewables businesses are being sold for £36.7 million maximum, the rest of the disposals coming mainly from property.
Weir accompanied the disposals with a trading update that showed that things might just be getting a bit easier. Orders were 15 per cent lower than in the previous year in the first five months of the year, against a 21 per cent fall in the first quarter. Oil and gas is proving difficult, a $50-a-barrel oil price not encouraging much investment. Mining is doing a bit better as customers renew maintenance that had earlier been suspended.
The shares gained 36p to £13.89. They are up 70 per cent since their February low and sell on 22 times earnings, so further upside looks limited.
My advice Avoid
Why Shares trading on high multiple after price recovery
And finally ...
Good Energy has the habit of calling on its customers when the AIM-listed company wants to raise fresh capital, as befits a business that supplies green energy because customers are already supportive. It owns and operates wind and solar farms and has raised another £3.1 million to fund expansion with the intention of expanding that customer base from 220,000 to 1 million. In the latest cash raising, which was oversubscribed, the majority of the 2,000 individual applications came from those existing customers.
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