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DS Smith - packaging up a nice present for investors

By Chris Bailey | Friday 8 December 2017

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I loved up DS Smith (SMDS)'s trading update just over a month ago and the formal half year numbers see a continuation of my enthusiasm. You cannot quibble with 5% organic growth, a 7% rise in the interim dividend, an 'excellent' bedding down of the new US expansion and it has even thrown a new cheeky deal in to show the continued scope for European expansion. In the world of packaging, paper and plastics I cannot offer you corporate violence and huge fluctuating excitements but I can offer you a decent growth-at-a-reasonable-price company.
The basic premise of the DS Smith stock story remains the rolling out of good capabilities servicing sectors, such as the fast moving consumer goods area, which want and need its packaging and related products to stand out in a world where it is hard to differentiate. This know-how, via attractively priced acquisitions and local distribution capability, has been rolled out to Continental Europe and more recently the US where - funnily enough - similar demand is apparent. And given the classic paper and packaging area has been a byword for grinding commodity related shifts and hard to predict profitability, such an offering has been gaining a broadening appeal with investors.
Now there were some wiggles in the numbers typically around lapping higher input costs, but a good product and service unsurprisingly has pricing power and this was apparent in the results - and is projected to continue. The bottom-line however remains that the company is deleveraging after the big aforementioned US acquisition via a 5% free cash flow yield (only half of which it returns as a dividend to investors) and the earnings multiple (on my favoured EV/ebit measure) is a little less than 14 times prospectively, which is higher than what it was...but hardly rampant.
As I write I see the shares are besting 550p again which was (1) a target I had in mind a while back and; (2) a bit of a resistance point. I have to say however that reading through the strategy and progress I am not selling soon and - in that technical parlance I learnt too many years ago - 'the old resistance may become the new support'. Bottom-line, packaging remains hot to trot and DS Smith remains one of my core FTSE-350 plays. Keep an eye out for its packaging range when you are ripping open your Christmas presents in just over a couple of weeks!

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