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Share Centre stock of the week: DS Smith

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Ian Forrest, investment research analyst at The Share Centre, explains why he has chosen DS Smith as stock of the week.

Plastic packaging group DS Smith provides corrugated and plastic packaging in 25 countries. The company, which was founded in 1940, also operates a recycling business that collects used paper and corrugated cardboard from which it makes the recycled paper used in corrugated packaging.

Earlier this month, the group reported a 6% increase in revenues to £1.95bn, but investors should acknowledge that pre-tax profits dropped 20% to £91m due to the strength of sterling and a rise in costs. However, DS Smith said the full-year outlook remained positive and it subsequently raised the dividend by 8%.

A number of acquisitions have been made by the group recently, the integration of which is progressing well. This has resulted in a step up in production volumes of corrugated packaging and cost savings are ahead of expectations. Subsequently, the company now has a 16% market share of corrugated packaging in Europe.

This is a group that has experienced excellent sales and earnings growth in recent years due to increasing demand from major food producers and the strong trend towards online retailing where cardboard packaging is widely used to transport products. Furthermore, its strategy of adapting to provide customers with a growing range of services, from corrugated packaging to recycling and paper, has helped drive growth and retain customers.

As a result, we currently recommend DS Smith as a ‘buy’ for medium risk investors seeking both growth and income. The subdued economic background in the Eurozone may persist for a while yet, but the company has managed to grow in spite of that in recent years.

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