Smurfit Kappa
The cardboard box has been one of surprising winners of the internet age. The vast increase in the amount of shopping done via any number of websites has created a strong demand for packing to ensure that goods are delivered safely.
Smurfit Kappa, which makes more cardboard boxes than anybody else in Europe, should be well placed to benefit from that rising trend, as well as the pressure on companies to tick the social responsibility box by making the packaging they use more sustainable and recyclable.
The Dublin-based company, which can trace its roots back to 1934, has had an association with the Smurfit family, one of the richest in Ireland, since 1938. Its customer base includes many of the world’s best-known brands, such as Nestlé, Unilever, Coca-Cola, Heineken, Kellogg’s, Danone, Procter & Gamble, Mars and Pepsico.
Along with various types of paper packaging, Smurfit Kappa also builds mechanised systems to help to pack goods into boxes. It also offers a wide range of consultancy and supply chain services. With 46,000 staff spread across 370 facilities in 35 countries, it has a wide reach.
Yet its annual pre-tax profit for 2017, which was reported yesterday, was down 12 per cent at €576 million, thanks in part to rising raw material prices. Yet the company was hitm too, by operational and weather related difficulties in the Americas.
Revenue rose 5 per cent to €8.56 billion while net debt was reduced by 5 per cent to €2.8 billion. The costs of recovered fibre, the main raw material for making boxes, increased by €120 million during the calendar year.
There were signs of improvement in the fourth quarter, however, with profit up 4 per cent to €161 million and underlying margins improving to 15.9 per cent as increases in prices for its customers fed through.
The FTSE 100 company felt sufficiently confident in its prospects to increase its final dividend by 12 per cent to 64.5 cents per share. Previously it had paid a 23.1 cents interim dividend in October, so the total payment for 2017 will be 87.6 cents, a 10 per cent year-on-year increase. Tony Smurfit, chief executive, said that the board planned to continue a progressive dividend policy.
He added that trading in Europe, which is the largest part of the business, had been strong so far this year and that performance in the Americas was improving. The company plans to invest €1.6 billion by 2021 over and above its annual spending on maintenance, which will be in the region of €300 million. Mr Smurfit said that he continued to look for acquisition opportunities, but acknowledged that pricing, particularly in the United States, remained high.
Smurfit Kappa’s shares have been moving higher since the company transferred to a premium listing in London and changed its Irish Stock Exchange listing to a secondary one in the spring of 2016, a move that meant the company would be included in the FTSE indices. The shares, which were at £17.26 at the beginning of March 2016, traded above £26 last month but since then have edged back. They fell 10p to £24.44 yesterday.
Analysts at Investec have a “buy” rating on the business and said yesterday: “We reiterate our positive stance on [Smurfit Kappa] as it is benefiting from both a cyclical upturn, as well as secular drivers like the rise of ecommerce.”
Those analysts expect revenue to get close to €9 billion in 2018, with pre-tax profit in the region of €740 million, and forecast further growth to come next year.
Advice Buy
Why Customers are having to purchase increasing volumes of packaging and boxes, putting the company in a strong position to raise prices
Grainger
Most people, even if they don’t own a property, will have heard about the slow demise of amateur landlords, beaten down by regulatory changes and extra charges. They may not have heard that it is a godsend for companies such as Grainger.
The FTSE 250 business was once seen as the sleepy, if not quite sleeping, giant of the property world. It owned a huge portfolio of regulated tenancies, typically bought at a 30 per cent discount to market value. It collected the rent from tenants, then sold the homes on to private investors when the occupants left or died. Nice work if you can get it and a simple scheme that helped to make Grainger the largest listed residential landlord in Britain. However, the deregulation of the rental market in 1989 bought an end to new regulated tenancies.
Helen Gordon took the chief executive role in January 2016 and decided to dedicate almost all the business to the burgeoning private rental sector, in which are homes built solely for renting. At around the same time, the booming buy-to-let sector was just about to have its wings clipped. The government imposed a 3 per cent stamp duty surcharge on second homes in April that year, then began a four-year process of removing the tax relief that landlords can claim on mortgage interest payments.
Specialist lenders have said that they are seeing a professionalisation of the UK’s rental sector as many small landlords choose to get out of the sector. That has made Grainger a safe bet. It is offering itself as a professional institutional landlord business, which it says is predicated on customer satisfaction and retention and with the ability to deliver thousands of homes that local average earners can afford. Its rental model is more management-intensive than its previous regulated tenancy programme, but is higher-yielding. The government is also desperate for more institutional money to enter the private rental market.
The shares trade at an 11 per cent discount, which, like a successful execution of an investment strategy and good visibility on future rental income, looks attractive.
Advice Buy
Why Good management, government support and strong demand for the offering
