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Stock of the week: Smurfit Kappa

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Helal Miah, investment research analyst at The Share Centre, picks paper packaging company Smurfit Kappa as stock of the week.

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, is a relatively recent entrant to the FTSE 100. Its success however, is unsurprising given that companies involved in the packaging business have generally done well of late as the rise of online shopping combined with consumer confidence levels have kept up to support the demand for packaged goods.

The latest trading update showed year-to-date revenues rising by 4% to €6.4bn helped along by continued volume growth in Europe and the Americas, as well as by recovering box prices. Investors should note that the company is diversifying its geographical exposure through further acquisitions and the integration of these businesses seems to be progressing well. Indeed, Smurfit is the largest corrugated packing producer in Europe and the only pan-regional player in Latin America.

The group’s overall business model is relatively defensive and it pays a reasonable dividend yield of around 3% which should prove attractive to income seekers. The demand environment seems to be very supportive and the group will hope to benefit from online shoppers in the run up to Christmas.

As a result, we recommend Smurfit Kappa as a ‘buy’ for investors seeking a balanced return, who are willing to accept a medium level of risk.

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