Knock out half year results are behind a strong rally in the share price of Ireland-based packaging firm Smurfit Kappa (SKG), powering the stock to top spot on the FTSE 100 leader board on Wednesday (1 Aug).
At around 10.30am the shares are more than 3%, or 100p, higher at £32.30, valuing the business at more than £7.66bn.
This is a truly global player in virtually everything paper-based in packaging solutions, from corrugated padding to fruit juice containers and product displays. It operates in 35 countries worldwide.
In the six months to 30 June headline revenues are up 4.6% at just over €4.4bn, although the company claims underlying growth of 8%, very decent given the maturity of the product.
This fed through to reported pre-tax profit of €416m, but strip out one-off costs (about half of which stemmed from its successful defence from takeover by US rival International Paper earlier this year) totalling €37m, the €453m pre-tax outcome shows a staggering 83% jump year-on-year.
That smashed forecasts pitched at €411m, according to the numbers crunched by analyst at broker Davy.
SURPRISINGLY ROBUST CASH GENERATION
The strong growth in earnings before interest, tax, depreciation and amortisation (EBITDA) - up 27% at €724m - resulted in free cash flow generation of €148m, more than three-times the €46m reported in the first half of 2017.
If the implied EBITDA-to-cash conversion rate of a little more than 20% looks light, it is worth remembering that the first half traditionally runs no better than cash neutral due to the swings and roundabouts of Smurfit’s yearly business cycle, and comes in spite of a €28m rise in capital expenditure (capex).
It leaves net debt of €2.87bn well with management’s stated leverage range of 1.75 to 2.5-times EBITDA, based on last year’s earnings.
There’s a very decent 10% hike in the dividend for shareholders, at €0.254 per share.
Perhaps best of all is management’s upbeat assessment of the latter six months, and beyond.
The outlook statement indicates that business conditions in the second half ‘remain strong’ while management also flag ‘significant growth opportunities, both organic and through acquisition.’
