A series of takeover deals by recycled packaging group DS Smith (SMDS) is helping the £3.6 billion cap to grow profits and sales despite the damaging impact of a mill closure last year.

Pre-tax profit edged up 1% to £201 million in the 12 months to 30 April, with revenue 6% higher at £4 billion.

Corrugated box volumes have grown ahead of the market, by 3.1%, with the acquired businesses in Western and Central Europe performing particularly well.

The encouraging growth, along with a 12% increase in the dividend per share to 12.8p, sends the shares surging 6.3% to 411.4p.

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

The positive results follow a disappointing half year statement in December, when pre-tax profit fell by a quarter to £91 million as a result of the closure of a paper mill in Somerset. This led to the share price plummeting to a low of 331p in February before DS Smith won investors over again with decent volume growth and a series of takeover deals.

The weak euro is one of the main headwinds for DS Smith; on a constant currency basis full-year revenue rose by 9% while pre-tax profit increased by 3%.

A UK-focused business five years ago, DS Smith is now very much a pan-European company, which appeals to multinational companies. We wouldn’t be surprised if it tries to crack the US market in a few years’ time.

JP Morgan has increased its target price from 460p to 470p, implying 14.2% upside.

Issue Date: 23 Jun 2016