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Smurfit Kappa Full-Year Results: What The Analysts Said

Published on Feb 13 2019 12:09 PM in Packaging And Design tagged: Trending Posts / Smurfit Kappa / Davy / Goodbody / Paywall / CityIndex

Smurfit Kappa Full-Year Results: What The Analysts Said

Smurfit Kappa has posted a 4% increase in revenue in full-year 2018, with the business posting a 25% increase in EBITDA for the period.

Tony Smurfit, the group's chief executive, said that the business' performance "demonstrates the group’s transformation of recent years, which is delivering progressively superior returns".

Here's how leading industry analysts viewed the packaging firm's performance:

Fiona Cincotta, cityindex.co.uk

"Headaches in Venezuela aside, Smurfit Kappa has posted a sturdy set of annual results. Pleasingly, margin improvement appears to be an ongoing story. There was a notable jump in operating margins during the second half of the year, as the company kept successfully pushing through price rises without scaring off customers.

"The big question now is whether Smurfit Kappa can keep those strong margins intact. Unfortunately, management hasn't provided much detail on its outlook. Going in Smurfit Kappa's favour is the continued rise of online shopping, which is driving demand for durable and light-weight packaging solutions that aren't as harmful to the environment as plastic.

"But there's potential storm clouds on the horizon, aside from the obvious threats posed by trade wars and slowing global growth. A recent Chinese ban on waste imports, including paper, has sparked fears of a supply glut elsewhere -- and there's every chance that could put pressure on cardboard box prices in the year ahead."

Barry Dixon, Davy

"Smurfit Kappa Group (SKG) reported record profits, cashflow and leverage for 2018. The step-up in profitability is a function of higher corrugated prices and more efficient operations.

"With its normalised free cashflow yield of over 11% set to increase further in 2019, the stock looks undervalued. We reiterate our ‘Outperform’ rating and 4200c price target."

Darren McKinley, Cantor Fitzgerald

"Smurfit Kappa FY 2018 results met our expectations with EBITDA, adjusted earnings per share and free cash flow all better than expected despite a modestly weaker revenue outcome.

"The stronger than expected free cash flow, dividend and earnings support our “Buy” recommendation and fair value of €31. While we expected further outlook guidance on the management conference call, details this morning would imply that management are confident of sustaining KPI’s at current levels, if not better.

"Smurfit Kappa trades on 8.7x earnings and with a free cash flow yield of 7.9%. This supports the groups c.3.8% dividend yield. International Paper walked away from a Smurfit bid in early June 2018 and are restricted from making another approach until at least June 2019. Speculation may start to grow again given where shares are trading and the opportunity for IP to approach again. We would like to see management continue to direct free cash flow toward debt reduction and small share buybacks."

David O'Brien, Goodbody

"Smurfit Kappa has reported FY EBITDA of €1,545m implying a fourth quarter outturn of €415m (Goodbody €420m/consensus €401m), representing growth of 25% yoy and 18% for Q4 (+27% Q3 / +32% Q2), a reflection of the strong yoy momentum on pricing for the period.

"European corrugated volumes increased by +2% yoy in FY18 versus +3% in H1 reflecting price discipline and slightly more subdued market growth albeit against a tough comparative in 2017. Management notes that corrugated pricing momentum continued into H218 with pricing finishing the year at the upper end of its expectations (+8-10%).

"In the Americas, EBITDA came in at €317m representing +2% yoy (held back by hyperinflation in Argentina and the impact of Venezuela) and an EBITDA margin improvement of +130bps which understates the strong performance of the US, Mexico and Colombia which experienced +230bps margin expansion."

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