Another acquisition and a solid set of the results from packaging group DS Smith (SMDS) sends shares in the £3.5 billion cap up 2.9% to 386.8p this morning.

The recycled corrugated packaging specialist is buying the corrugated activities of Grupo Lantero for €190 million, significantly strengthening its presence in Spain.

Last year the group acquired four businesses, including Spanish corrugated board producer Andopack and South East Europe-based Duropack. The latter, which was acquired for €300 million, completed four weeks ago and was expected to be immediately accretive to earnings per share.

SMITH (DS) - Comparison Line Chart (Rebased to first)

Grupo Lantero is expected to deliver synergies of five to six times EBITDA (earnings before interest, tax, depreciation and amortisation) in line with DS Smith’s previous deals. It gives exposure to the fast moving consumer goods segment and is a good strategic fit with Andopack.

'We had a negligible presence in Spain before. The Lantero deal gives us a 10% share in a market that we feel is very important,' says group finance director Adrian Marsh.

He adds that making acquisitions will continue to be a key part of its growth strategy, as it still only has a 16% share of the European corrugated market. 'There is a huge market still to go for,' says Marsh.

DS Smith has also reported full year results for the 12 months to 30 April, with reported pre-tax profit up 20% to £200 million despite foreign exchange headwinds.

Revenue is down 5% to £3.8 billion on a reported basis but up 1% at constant currency rates.  More significantly, corrugated volumes are up by 3.1%, which compares to 2.3% in the first half and 1.5% market growth in areas where it operates. This implies second half growth of 3.9%, reflecting the gains in market share that DS Smith’s value selling proposition is achieving.

Net debt was much lower than expected at £651 million due to a whopping £101 million reduction in working capital, significantly higher than Canaccord Genuity’s forecast of a £20 million reduction.

DS Smith is increasing its margin guidance by 100 basis points to 10%, which is something not many industrial companies are doing at the moment.

‘The attraction of a company with a proven track record of outperforming in relatively low growth but inherently stable markets is substantial in the context of the current macro outlook,’ says Canaccord Genuity analyst Harry Philips.

Investec’s target price is 430p, implying upside of 11%.

Issue Date: 25 Jun 2015