Packaging companies are strange beasts. Last year we Smurfit Kappa (SKG) When DS Smith (SMDS) You can sustainably grow your sales and profits in the face of uncertain demand and industry headwinds. Twelve months later, we’re still asking the same question.
Demand for cardboard boxes is on the decline. In December, DS Smith reported that his box volume was down 3% of his. The latest we’ve heard from Smurfit Kappa is that volumes are flat. This should come as no surprise. His shopping online has slowed down since the midst of the pandemic, and the cost of living crisis is also impacting fast-moving consumer goods (FMCG).
However, FTSE 100 packagers are still reporting record profits and improving guidance. This is mainly due to price increases. In the six months to 31 October 2022, DS Smith has raised a further £950m by raising prices.
But can this really continue? The market has been pessimistic about packaging companies for much of 2022. But they are constantly bucking the dark clouds, and some analysts believe the stock is ripe for a revaluation if there is any confidence in its 2023 earnings release. It may also be a good time to buy as the stock is fairly cheap relative to historical levels.
Now for the bad news. If the consensus forecast is to be believed, packager profitability has peaked. From 2023 he expects the situation to get worse through 2024. Prices are expected to fall due to softer demand and lower paper and energy costs. Analysts at Jefferies forecast that “supply is ahead of demand, pushing prices down to levels that support cash costs, lowering industry returns.”
Of course, there is also the advantage of lowering costs. Analysts at Jefferies argue that “cost-saving benefits will be seen before box prices may drop.” They may be able to help you.
| FTSE 350 packaging and paper | ||||||
|---|---|---|---|---|---|---|
| price | market | 12 months | Forward | dividend | ||
| company | (p) | cap (£million) | Change (%) | PE | yield (%) | Last IC view |
| world | 1,534 | 7,448 | -15.5 | 11 | 3 | Hold, 1,492p Aug 4, 2022 |
| Smurfit Kappa | 3,460 | 8,963 | -9.7 | 11 | 2.6 | Purchased, 2,836p, 27 Jul 2022 |
| Source: Factset | ||||||
