Stocks in Focus: DS Smith

  • DS Smith
Danielle Gibson, NW Brown

This week I am revisiting the international packaging company DS Smith, following the completion of its €1.8 billion acquisition of the Spanish sustainable packaging business known as ‘Europac’. The deal was largely funded by a rights issue in July 2018, which raised in excess of £1 billion. The acquisition moves DS Smith to a number two position in Iberia, continuing its growth track across Europe and offering a potential €50 million of cost synergies.

This follows management’s ongoing strategy to grow its presence globally through acquisitions across a largely fragmented market and by providing innovative solutions to the packaging industry. Going forward, there are further plans to divest their plastics business in order to focus on its core offering within the corrugated cardboard industry.

DS Smith has performed well in recent years and has been successful at incorporating acquired companies into its main business. The company released its half year results at the beginning of December reporting strong operating profit growth of 32% in addition to 9.9% margin growth.

However, despite the encouraging results, DS Smith has fallen out of favour with investors of late. Specifically, the share price has dropped almost 35% since the peak of 539p in June 2018. Concerns over the cyclical nature of paper prices has been mostly to blame, despite the company having a good track record of being able to pass on any price changes to its customers.

Reassuringly, with the majority of its products used in fast-moving consumer goods that are consistently in demand, DS Smith remains somewhat resilient to economic uncertainties. Going forward we see further scope for acquisitions across Europe and North America, which will hopefully continue to drive growth for the foreseeable future.


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