Equity prospects

Smurfit Kappa

James Godrich, Research Assistant

Price£23.67

52 week high-low£24.41 - £17.42

Net yield2.56%

Hist / pros per21.7 - 13.5

Equity market cap£5,629m

A deep knowledge and understanding of Smurfit Kappa means a quite surprising increase in one’s vocabulary; OCC, kraftliner, testliner, recycled containerboard, virgin containerboard and corrugated board are all phrases that were previously unknown to me. In simple terms though, Smurfit Kappa are one of the largest global players in the paper and packaging sector.

Their integrated offering means taking virgin fibres, which they use to create paper and subsequently cardboard, to make, often bespoke, packaging products for mostly FMCG (fast moving consumer goods) companies. Their fully integrated solution then acts to collect used cardboard, which they recycle to create recovered fibres, and the process starts all over again.

For a company that is highly exposed to commoditised markets, Smurfit Kappa have a very impressive historic margin and returns profile. Industry standard is for input cost rises to be passed on with around a six month time lag, with Smurfit often then bene ting from the upside of stable prices against a backdrop of falling input costs.

Recent results have seen short term pro ts impacted by record input cost rises. However, with stability returning to their cost base, Smurfit will hope to prove their pricing power with top line growth and steady margin progression under their customary time lag.

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