Shares in packaging firm DS Smith (SMDS) rise 2.5% to 390p, recovering from yesterday’s pull-back, following a positive first-half pre-close statement.
The firm expects gross profits (income from sales minus the cost of goods sold) and operating profits for the first half to be ‘materially ahead’ of last year.
As well as an increase in sales volumes it has been able to pass on cost increases customers through higher prices, which demonstrates the strength of its business and its relationship with customers.
The integration of Interstate Resources in the US, which it bought in August last year, is progressing well with major customers now ordering from them in the US as well as in Europe.
Meanwhile the regulatory review of its purchase of Spanish firm Papeles y Cartones de Europa (Europac) is continuing as expected and should complete by the end of this year.
The Europac acquisition will add over £750m of annual sales and close to £150m of earnings before interest, depreciation and amortisation (EBITDA) in 2019.
It also adds a large portfolio of customers with a bias towards the fast-moving consumer goods (FMCG) market which is DS Smith’s key area of expertise.
The company has been criticised for its recent spate of acquisitions but in every case there is a strong commercial rationale and opportunities to snap up high-quality assets at prices that are immediately earnings-enhancing don’t come along very often.
DISCLAIMER: The author owns shares in DS Smith
