The packaging space has recently endured a tough spell but is the outlook now brighter?
The FTSE 350 General Industrials index, mainly made up of paper and packaging plays, is down 10.6% since the beginning of October compared a 5.2% decline for the FTSE 350 as a whole.
News from Smurfit Kappa (SKG) has caught the market’s attention and lifted its share price by 2.7% to £26.22. This is also helping to improve sentiment with quoted peers DS Smith (SMDS) up 4.4% to 403.1p, and Mondi (MNDI) up 2.2% to £18.53.
Smurfit has revealed that in the first nine months of the year its earnings before interest, tax, depreciation and amortisation has grown by 27% to €1.13bn, supported by a 2.9% increase in the EBITDA margin to 16.9%. Full year earnings are expected to be ‘materially’ better than 2017.
In a display of confidence, the company has also announced the acquisition of a corrugated plant and paper mill in Belgrade for €133m or 7.6 times expected full year 2018 EBITDA.
This bullish update may help remind investors of the structural catalyst for the sector provided by the growth of online shopping. These goods need to be appropriately packaged before they are delivered to consumers which should underpin healthy demand.
The fact this collection of companies has also invested in sustainable solutions is also a plus point given the increasing emphasis in many parts of the world on protecting the environment.
DS Smith is scheduled to announce its first half results on 6 December, Mondi delivered a mixed trading update on 11 October and should next report in March with its full year results.
