Stock of the week: Smurfit Kappa
Smurfit Kappa engages in the manufacturing, distribution and selling of containerboard, corrugated containers and other paper-based packaging products, such as solid board, graphic board and bag-in-box. The company, which has 370 production sites across 34 countries, found itself promoted to the FTSE 100 in the latest index reshuffle and its recent success rate is unsurprising given that companies involved in the packaging business have generally done well of late as consumer confidence levels have kept up to support the demand for packaged goods.
The company describes itself as one of the world’s leading producers of paper-based packaging and is clearly benefitting from the above as well as an increase in people shopping online. This is demonstrated by its latest results with the group reporting that revenues for the first nine months of 2016 were 1% higher than the previous year at £6.1bn. Smurfit Kappa also reported EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) of £323m, up by 6% over the year based on constant currencies and investors should likewise appreciate that the group reiterated it remains on target to deliver earlier guidance.
Roughly three quarters of the company’s sales are generated in Europe with the rest in the Americas and the group has successfully managed to increase the prices of certain products across all of these regions. Further volume growth is expected across the board and the group’s overall defensive business model could provide some comfort for investors. As a result, we recommend Smurfit Kappa as a ‘buy’ for investors looking for a balanced return and willing to accept a medium level of risk.