Many FTSE 100 shares’ prices have risen over the past year. This is no surprise. The pandemic was raging and stock markets were bearish last year. And they are quite healthy now, by comparison. But some stocks have risen more than others. Like the packaging provider Smurfit Kappa (LSE: SKG), whose share price is up 64% from a year ago.
Investors like Smurfit Kappa’s results
It can rise even more, considering investor reaction to its latest results. It reported its half-year results for 2021 today, which showed an 11% revenue increase and an 8% increase in its pre-tax profits compared to the same time last year. Notably, its net debt to earnings before interest, taxes, depreciation, and amortisation, commonly known as EBITDA, declined to 1.6 times from 2.1 times last year.
Investors have given its results a thumbs up, increasing its share price by 1.1% as I write. This may change before the end of today’s trading session, but for now it appears that the update is seen as more positive than not.
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Macro positives to the FTSE 100 stock
As an investor with a top-down perspective, I like two macro aspects to the Smurfit Kappa stock in particular.
The first relates to prices. Inflation has been a cause of concern across FTSE 100 companies in the past few months. Other packaging providers like Mondi and DS Smith have referred to rising paper prices, and so has Smurfit Kappa. It comes up again in its latest update. But this time, so does corrugated price recovery. This indicates that it has the pricing power to pass on increased costs to its end consumers. In other words, its profits need not get squeezed because it has to absorb rising costs.
Next, I also like its long-term story. As a believer in the idea that e-commerce companies will continue to grow, and fast, over time, I also believe companies associated with them would grow with them. Smurfit Kappa has already benefited from the boom in online sales last year.
And it is still going strong. Recent updates on online sales from e-grocer Ocado and retailer Next show robust growth. Amazon’s results due tomorrow are expected to show the same. This bodes well for packaging providers.
What can go wrong
Still, I think for the short term it is reasonable to factor in some softening in growth. This is because the true impact of easing restrictions and vaccinations will start showing up on the economy only now. And it is only by next quarter we will know how the story plays out.
Also, at present policy makers believe that inflation is a transitory threat. They expect it to subside over the next few months, but there is one set of economists that believes otherwise. It remains to be seen how this plays out, too.
My takeaway
On the whole though, I think there is much to like about Smurfit Kappa. Its share price increase may be slower from here, but I continue to see it is as a long-term gainer.
