Smurfit Kappa Share Discussion Threads

[keelingr] 29/1/2010 09:30

...and NCB?! Will Merrion & Dolmen join the bandwagon to complete a full house?!

Smurfit Kappa €6.51 BUY Ireland/General Industrials
• SCA cautiously optimistic on 2010 Prospects
• SCA, a peer of Smurfit Kappa, reported Q4 results yesterday with commentary on
outlook for 2010 being the main focus. The Group is "cautiously optimistic" on 2010 with
demand for packaging "expected to strengthen", though it expects a relatively weaker
start to Q1 2010.
• The Group comments that volumes in packaging stablised in Q4 with liner prices
continuing to increase. Containerboard volumes declined by 7%, adjusting for
disposals, while volumes in corrugated remained flat. In Q4 EBIT increased by 37%
benefitting from lower energy and raw material costs along with cost savings achieved.
For the full year, as part of the Group's rationalisation programme, SCA cut production
capacity by 350k tonnes. The Group ceased operations in 11 corrugated plants and
accelerated the closure of a testliner plant in the UK.
• Demand for 2010 is projected to increase by 2-3% with SCA CEO saying "that
packaging will definitely have a better result this year than last year".
• We remain bullish on SKG. The fundamentals of the industry continue to improve i.e.
demand has stablised with capacity levels down year on year, while containerboard
prices are being pushed up successfully. SKG derives an estimated 50-60% of its
business from consumer staples such as food/beverage packaging. The decline in
volumes of 12% in 2009 which was a multiple of GDP declines in Europe was
unprecedented. SKG's net debt profile has been improved with no major maturities
before 2013 and significant undrawn facilities and unencumbered cash available. We
believe SKG is an attractive play on (even modest) European recovery, given the
decline in EBITDA from €1.1bn in 2007 to €0.7bn in 2009. Assuming a 50% recovery
over the next 2 years and valuing the business at 6-7x EV/EBITDA generates a price of
€7.56-€11.67 per share (after deducting pension deficit of €0.6bn). We maintain our
BUY recommendation.

[keelingr] 29/1/2010 09:25

Even your own investment gurus at Bloxham are in on the act!!!

Smurfit Kappa - Announces further price increases, SCA Q4 results
• Smurfit Kappa has announced plans to increase white top kraftliner prices by €50/tonne from
1 March according to RISI. This follows the €60/tonne increase on all recycled grades
announced earlier this week. As with the previous increase the reasons given are to cover
rising input costs (in this case bleached pulp) and to reflect the more positive market
circumstances.
• Separately, SCA yesterday reported Q4 results with sales in the quarter declined 2% year on
year to SEK 27.5m which was marginally ahead of consensus estimates for SEK 27.4m.
The group reported underlying PBT of SEK 2.28m, up 98% year on year and better than
market expectations.
• SCA states that at a group level the favourable trends previously reported continued during
the final quarter. Given the expectation of improved demand, management is cautiously
optimistic on the prospects for 2010. Despite this comments on a weak start to the year were
not well received and saw the shares finish down over 6% at the close.
• In the Packaging division, operating profit increased 37% (Q3: -46%) reflecting lower input
costs (energy and OCC) and the benefit of restructuring. This was in part offset by lower
prices (Q4: -8%, Q3: -9%). Corrugated demand improved towards the year end and
management expects 2-3% growth for the european packaging market in 2010. In the
quarter packaging volumes dropped by 1%, an improvement on the 6% fall reported in Q3.
• SCA is Europe's second largest producer of corrugated board and containerboard after
Smurfit Kappa. The return of the group's packaging division to profitability and the recently
announced containerboard price increases (by SCA, SKG and Mondi) provide a positive
backdrop for Smurfit Kappa's Q4/ FY09 results on 10 February

[keelingr] 29/1/2010 09:14

Price 651c Rating: Outperform Issued: 30/06/09

SCA reported Q4 and full-year results that were slightly ahead of market forecasts.
A disappointing performance from the tissue division caused the stock to sell off.
On the packaging side, however, there was a significant improvement in
performance and outlook.
Like-for-like containerboard volumes increased by 4% in Q4 compared to the same
period last year. This compares with a decline of 13% in Q3 and in H1.
Corrugated volumes were flat year-on-year (yoy) in Q4 having been down 8% in
Q3 and over 10% in Q1. Corrugated prices were down almost 10% yoy which
resulted in a decline of the same order in packaging revenues.
Operating profits in the division were 37% higher due to lower costs (energy and
raw materials) as well as the impact of cost savings. For SKG, we are forecasting a
28% yoy decline in operating profit in Q4.
In terms of outlook, management is more optimistic. Demand for corrugated
packaging is forecast to increase in 2010 (by 1-4%). We are forecasting flat
volumes for SKG in 2010.
Corrugated prices will increase in line with the increase in containerboard prices
(c.€100/tonne) implemented at the latter end of 2009. Further box price increases
may be implemented in H2 if the current €60/tonne increase in containerboard
prices is successfully implemented. For SKG, we are assuming a €60/tonne increase
in box prices for the full year.
As expected, management pointed out that there was likely to be a relatively weak
start to 2010 as raw material prices increased further and box price increases were
only fully implemented towards the end of Q1.
Taking all this into account, it would appear that the risk to our SKG numbers is
firmly on the upside in H2 of this year. SKG itself reports Q4 and full-year numbers
on February 10th.




...at what point will you concede defeat?!

[keelingr] 29/1/2010 09:14

Good news just keeps coming LBO - looks like you're fighting a losing battle here!

Smurfit Kappa announces price increase for White Top Kraft
Smurfit Kappa

Smurfit Kappa has announced a €50/tonne price increase for white top Kraftliner, effective from March 1. The company have cited rising input costs, but also note the increase is reflective of the positive market development. The significance to Smurfit Kappa of this increase lies in the fact that the Group is long Kraftliner, thereby having an immediate effect on the P&L, while recycled containerboard price increases have a lag effect through box price increases. This announcement quickly follows the price hike for recycled containerboard and serves to reinforce our view that the European packaging industry is currently in a sweet spot. The announcement underpins our recent increase in forecasts and we remain positive on the stock as we approach Q4 results on February 10.

Positive trends to the fore in SCA Q4 packaging results
In SCA's Q4 results yesterday, the one comment that caught investor's attention was that the packaging business (No.2 European corrugated producer) was going to have a "relatively weak start to 2010". However, on the conference call, management indicated that this was referencing the short-term squeeze on margins due to the lag effects of passing on costs. This is very much in line with our Smurfit Kappa forecasts (see note issued yesterday). The other takeaways from the SCA results, with regard to the packaging business, were as follows:

Packaging profits grew for the first time since Q4'07 (+7% EBITDA and +37% EBIT). In contrast, our revised forecasts for Smurfit Kappa imply that EBITDA will decline by 10% in Q4 to €176m (consensus -11%). Throughout the current cycle Smurfit Kappa has protected its profitability better than SCA, a function of swift action on the cost base. This may reverse somewhat in the coming quarters as SCA appears to have been late to the party in reducing costs;
Corrugated volumes were flat yoy in Q4 versus -8% in Q3 and -14% in both Q1 and Q2; and,
This improving trend is expected to continue with SCA expecting volume growth of 2-3% in 2010, which compares to our expectation of slightly less than 2% for Smurfit Kappa's European operations.
So overall, the trends observed in SCA's results support our view that the industry is in sweet a spot and investors should buy Smurfit Kappa ahead of the Q4 results on February 10th (see yesterday's note "Upgrading ahead of Q4 results").

[lbo] 28/1/2010 18:23

Nothing really changes in Roberts analysis even after 2 years, not even the price! Goodbody saying to buy is nearly as ominous as Davy saying buy IMHO How many Irish brokers does it take to change a light bulb? LOL





29th May 2008

Add, Closing Price €6.57

[keelingr] 28/1/2010 09:09

Smurfit Kappa (Buy, Closing Price €6.30)
Analyst: Robert Eason
Raising forecasts ahead of Q4 results
Smurfit Kappa

Ahead of Q4 results on February 10th we are upgrading our EBITDA forecasts for Smurfit Kappa by 2% in FY10 and 14% in FY11. These reflect an improving demand environment, confidence that the current round of price increases for recycled grades in Europe will be successful (underpinned by higher OCC prices and an industry where a significant proportion is still finding it difficult to generate cashflows) and a tight supply situation in the US, which will impact kraftliner export prices and therefore underpins prices in both Europe and Latin America. The forecasts also now incorporate the devaluation of the Venezuela Bolivar. The revised forecasts have EBITDA peaking at €1.2bn, versus previous peak of €1.1bn, so we are still not giving full credit to the cost take out programmes. From a valuation perspective we believe the share price should at the very least trade at NAV (760c), given the positive forecast revision cycle, which will see the company generate double-digit returns by FY11, and increasing flexibility emerging on the balance sheet that will raise the speculation over acquisitions and dividends as we go through the year. However, applying mid-cycle multiples (EV/EBITDA 6x) to our conservative mid-cycle EBITDA forecast yields a PT of €10. As this represents significant upside, we reiterate our Buy recommendation ahead of the Q4 results.

Watch out for SCA's (No.2 European corrugated producer) Q4 results this morning.



LBO --> "increasing flexibility emerging on the balance sheet that will raise the speculation over acquisitions and dividends as we go through the year."

[keelingr] 27/1/2010 09:03

LBO - I admire your persistence. But the fact remains that they don't need to have a rights issue to pay down debt as this can simply be done with cash generated from operations which I'm sure you'll agree is rather impressive! No material debt repayments till DEC13 as per the FT article you just quoted. ST though, SKG might be in for a bit of pressure as the general market feels very nervous.

[lbo] 26/1/2010 21:02

a recent McKinsey piece on deleveraging:

"Deleveraging episodes are painful, lasting six to seven years on average and reducing the ratio of debt to GDP by 25 percent. GDP typically contracts during the first several years and then recovers. If history is a guide, many years of debt reduction are expected in specific sectors of some of the world's largest economies, and this process will exert a significant drag on GDP growth."

[lbo] 26/1/2010 20:56

How long before they annouce the rights issue to pay down the debt? Pumpty dumpty sat on a wall....pumpty dumpty had a great fall!



Before its restructuring Smurfit was set to breach its net debt to ebitda covenant of 4.375 times. The new covenant is about five times.

Mr Curley believes this gives Smurfit headroom. "We won't even breach the old covenants. But it was getting tight. Our feeling was we could have an issue. It was better to deal with it now."

[keelingr] 26/1/2010 09:43

• Packaging Corporation reports strong exports but higher fiber costs
• Packaging Corporation released its Q4 results after the US close with sales of $532m slightly ahead of consensus estimates of $506m. Net income was weaker then expected as a result of lower containerboard and corrugated product mix, which was partially offset by stronger volumes and lower costs for energy and transportation.
• The Group comments that corrugated product demand was stronger then anticipated in Q4, with shipments increasing by 8.3% and 4.3% compared to 2008 and Q3 2009. The Group also mentions that exports of containerboards were "very strong"
• On outlook the Group anticipates higher prices from announced increases in
containerboard and box prices, however the earnings benefit will not be realized until they are passed through in Q2. For Q1 the Group is expecting EPS of $0.12 well below last years figure of $0.25. Packaging Corporation expects a weaker performance as recycled fiber costs and energy costs will be "much higher", along with increase downtime impacting Q1.
• Smurfit Kappa has followed other European manufacturers with a €60 increase in recycled containerboard, to take effect next month. Given its integrated nature, further box price rises will need to follow for the benefit to hit SKG's bottom line. We continue to remain bullish on SKG given the improving dynamics within the industry and SKG's 60% sales exposure to the Food & Beverage sector. We continue to view that 2009 will proved to have been the trough year in earnings. Currently trading on an EV/EBITDA of 6x 2010 earnings we reiterate our BUY recommendation

[keelingr] 26/1/2010 09:19

RISI announced yesterday that Smurfit Kappa is to follow Mondi and SCA with a €60/tonne increase for recycled containerboard grades in Europe. As with the other players the reasons cited are increasing input costs (particularly OCC) and also "positive changes in the market circumstances". In justifying these increases it is of note that all producers have cited improving demand, whereas the first increase back in September was solely on recovering costs. However, it is our view that recent increases in OCC prices, in isolation of better demand, underpin testliner 2 prices in the region of €410-470/tonne versus current levels of circa €360/tonne. Furthermore, the small non-integrated high cost mills remain under pressure to generate cashflows.
Therefore, we believe the latest announcement has a high probability of being successful. It also looks like that the bias for US pricing is upwards too, with RISI citing a very tight market on the back of supply shutdowns, rising costs (particularly the ending of the black liquor tax credit) and a pickup
in demand (both domestically and exports - see Packaging Corporation results below). Furthermore, adverse weather in the south has also impacted the supply of wood to the industry. Therefore, such is the pressure on containerboard mills to supply their own domestic customers, they may have to sacrifice export markets, which will ultimately be positive for kraftliner pricing
in Europe. So, the positive dynamics in the industry that we have been talking about for some time continues, thereby keeping the bias to our forecasts for Smurfit Kappa on the upside. Packaging Corp results point to pick-up in demand but short-term margin pressures in Q1 Packaging Corporation (the No.5 US containerboard producer) reported Q4 adjusted earnings of $0.16, which was ahead of both guidance and consensus of $0.13. The two key takeaways
from the results were: (i) A strong pick-up in demand with corrugated product shipments up 8.3% yoy; and, (ii) Q1 earnings guidance of $0.12 is behind consensus of $0.16, reflecting maintenance outages and the lag effects of passing on higher costs for integrated players into box prices. In the upcoming quarterly results from the European players, we believe such Q1
margin pressures will also be highlighted, on the back of higher costs (OCC, containerboard etc), but these will dissipate in subsequent quarters with increases in box prices.

[keelingr] 26/1/2010 09:16

Price 638c Rating: Outperform Issued: 30/06/09

Following announcements from SCA and Mondi last week, Smurfit Kappa Group
(SKG) has confirmed that it plans to increase recycled containerboard prices by
€60/tonne from February 1st. Rising raw material prices – in particular recovered paper – and an improving underlying market were the main reasons for the increase. We are currently forecasting €839m in EBITDA for SKG in 2010 based on box prices increasing by €60/tonne in H1. This is likely to prove conservative given that the industry appears to have been successful in implementing a c.€90/tonne increase in containerboard prices towards the end of last year. Corrugators are now seeking a similar rise in box prices.
If the current containerboard price rise is successful, then further box price
increases are likely in H2. Every 1% increase in box prices will raise SKG's EBITDA by c.€30-35m.

Based on our current forecasts, SKG is trading at just over 5 times EV/EBITDA and less than 8 times P/E. With upside risk to forecasts, the stock looks very cheap. We reiterate our 1000c price target.

[lbo] 25/1/2010 09:39

Equity call fears mount among Davy investors

Fears are mounting among Davy investors that they may face an equity call to fund the development of a number of eastern European projects in which they have already invested more than €200 million in equity.

A number of private clients and institutional clients of Davy Stockbrokers invested the money in Ballymore International Developments in 2007 to fund €1 billion property development projects in Berlin, Prague and Bratislava.

Among the investors to have backed the firm is multimillionaire Michael Smurfit and FBD Insurance company, according to Ballymore company filings. The filings also name property developer Sean Mulryan as a major shareholder in the international subsidiary

[keelingr] 25/1/2010 09:06

Price 612c Rating: Outperform Issued: 30/06/09

SCA is the latest company to announce a €60/tonne increase in recycled
containerboard prices from February 1st. Rising raw material costs and improving market conditions are the main reasons cited for the increase. It follows a similar announcement from Mondi last week. We expect the other industry players, including SKG, to follow suit over the coming weeks.
This increase follows the successful €90-100/tonne increase implemented late last year which is currently being pushed through in box prices. In our forecasts, we are assuming a €60/tonne increase in box prices in 2010. If the latest increase in containerboard prices is successful, this assumption will prove conservative. Every 1% increase in box prices adds c.€30-35m to group EBITDA. The risk to our forecasts therefore is very firmly on the upside.
SKG declined by 7.5% last week, significantly underperforming the European
sector (-2.9%) and its main peers, Mondi (+0.7%) and SCA (-1.8%). Given the
improving dynamics of the industry and SKG's dominant position in the European
market, we do not believe that this is justified. The stock is trading at an EV/EBITDA of 5 times our 2010 forecasts (the sector is trading at 6.5 times) and a P/E of 7.2 times (versus the sector on over 15 times), making it look extremely attractive in terms of valuation.

[smicker] 24/1/2010 21:13

More positive news

[lbo] 21/1/2010 09:45

The manufacturers need higher prices and the consumer and consumer goods companies want lower prices. How sustainable is increasing prices in an oversupplied market?




World Bank warns of slump in growth

Thursday, 21st January 2010

The global economy will suffer the fallout from the financial crisis for years to come, the World Bank has said.

In a report, the Washington-based bank has warned that growth may wilt later this year as government stimulus packages fade.

[keelingr] 21/1/2010 09:29

Smurfit Kappa (Buy, Closing Price €6.57)
Analyst: Robert Eason
Pricing momentum in Mexico
Smurfit Kappa

According to RISI, corrugated producers in Mexico will increase box prices by 5-8% in February, on the back of higher containerboard / energy / freight costs. This is broadly in line with our forecasts, but we believe there is the prospect for more such increases given the upward bias to pricing in the US. So Europe is not the only region that is experiencing positive pricing momentum. Smurfit Kappa is the No.2 player in the Mexican corrugated market and we estimate that these operations represent approximately 6% of group profits (Latin America as whole is a bout a quarter of group profits).

[lbo] 20/1/2010 21:41

Rich countries face years of belt-tightening to reduce high debt levels; Deleveraging following crises lasts six to seven years on average

[lbo] 20/1/2010 13:55

Sounds like Goodbody trying to poach SKG aswell! LOL



Davy has been shedding corporate broker clients – a market that it has traditionally dominated.

On Monday, agri-nutrition company Origin Enterprises became the latest listed company to switch from Davy to Goodbody.

This is a path that Greencore, and China Real Estate Opportunities had already trodden in the past number of months.

In addition, United Drug and DCC have appointed Goodbody as joint brokers with Davy

[keelingr] 20/1/2010 09:13

Smurfit Kappa (Buy, Closing Price €6.65)
Analyst: Robert Eason
Upward trend in OCC prices support containerboard price increases
Smurfit Kappa

The latest weekly data from Foex (out yesterday) shows, that following a period of flat OCC prices in Europe, the trend has started to move up in recent weeks. This appears to reflect an improvement in demand coinciding with disruptions to supply due to bad weather. Such increases underpin the recent announcement by Mondi to increase recycled containerboard prices in Europe by €60/tonne and we believe others will follow in the coming week. As we noted yesterday, such increases provide upside to our Smurfit Kappa forecasts, as we have no changes to containerboard prices pencilled in for 2010.

[lbo] 19/1/2010 21:40

Things a little under the weather at Davy

[lbo] 19/1/2010 19:11

Low inventories hint at doubts over recovery's staying power



Gary McGann, chief executive of Smurfit Kappa, Europe's largest maker of cardboard boxes, said: "I'm not sure restocking is a sensible first step, because all it does is confuse factors. What you want is real demand growth, and I think until we have real demand driven growth we're not really over the hump.

[keelingr] 19/1/2010 08:43

Mondi has announced a €60/tonne price increase for recycled containerboard from
February 1st. Rising input costs and stronger demand are the main reasons put
forward for the increase.

This is a significant move for the sector, which has already implemented a €90-
100/tonne increase since August last. We believe that other players, including
Smurfit Kappa Group (SKG), will follow Mondi's initiative.

Raw material (OCC) prices have started to increase over the past few weeks as
Chinese demand strengthens in advance of the New Year on February 14th.
Industry discipline, which continued over the Christmas period with extended
downtime, has resulted in relatively low containerboard inventory levels. This,
combined with stable/improving demand, is supporting the industry's move for
higher prices.



For an integrated player like SKG, it is box price increases which matter. Both it and the other corrugated producers are currently attempting to increase corrugated prices by 8-12% to recoup the €90-100/tonne rise in containerboard prices. This latest price announcement from Mondi, if it is successful, will have to be reflected in box prices later this year. This would result in forecast upgrades for SKG.

We remain positive on SKG given its compelling valuation (20010 EV/EBITDA
multiple of circa 5 times, P/E 8 times) and the prospects for further earnings
upgrades. We reiterate our 1000c price target.