Packaging giant Smurfit Kappa has reported a 6% drop in revenue in full-year 2020, with EBITDA falling by 9%, however the business said that its performance was ahead of expectations.
"The inherent strength of our business together with the recent capital raise provides us with an unrivalled platform to accelerate our vision and the Group’s next phase of growth and development," commented chief executive Tony Smurfit.
Here's how leading industry analysts viewed its performance:
Barry Dixon, Davy
"The key message from Smurfit Kappa Group’s (SKG) 2020 results is the resilience and sustainability of this business. Despite a steady erosion in corrugated prices, a sharp decline in volumes mid-year and rising input costs in H2, the business still managed to deliver free cashflow of almost €700m.
"With volume growth now benefiting from structural growth drivers, pricing seemingly entering a new upcycle and the group’s financial strength reinforced, a long-term re-rating is inevitable."
Russ Mould, AJ Bell
“Few people would have predicted that cardboard would be one of the hottest properties in 2021, yet there is a shortage of the brown stuff which is pushing up prices, much to the delight of packaging groups like Smurfit Kappa.
“There are various reasons behind the shortage including stockpiling ahead of the Brexit deadline and disruption to the recycling supply chain. Boxes would normally be delivered to shops and then be collected efficiently, but more items are now going straight to consumers and a lot of packaging is now sitting idle in people’s garages or down the side of their house as the bin men refuse to take large boxes.
“On a global scale, Covid-related complications with shipping and staffing issues have also affected availability of packaging materials.
“As a supplier, Smurfit is in a sweet spot to take advantage of market tightness. It says prices and demand are picking up, suggesting a good year ahead for the business. Its 2020 results were ahead of expectations and shareholders will certainly like news of an 8% increase in the final dividend.
“While it would seem as if Smurfit is very well placed, it must also deal with higher energy costs. These can be passed on to the customer through higher product prices which is fine but reduces the extra profit margin it could make during times of supply shortages. There is also an expectation for greater capacity to come online across the industry which could cap any big hike in selling prices.”
"The shares are trading just above the €40 mark in Dublin this morning, having seen over 5% gains so far this year, and 24% gains during 2020.
"With Smurfit's volume growth now benefitting from structural growth drivers, the group's financial strength reinforced, and its dividend yield of 2.7% at current levels, we reiterate our 'buy' rating on the stock, and plan to add our positions after this latest issue release."
© 2021 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.