Smith (ds) Share Discussion Threads

[churchtower] 04/6/2018 08:34

Somewhat quicker than I anticipated !

[phillis] 04/6/2018 07:23

Strange that Rights terms are deferred

[churchtower] 01/6/2018 15:59

Soon to challenge the all time high ?

[philanderer] 27/5/2018 10:21

Questor: DS Smith may have online packaging all wrapped up but the shares don’t look cheap

[dogwalker] 18/5/2018 10:26

Broker tip....Davy say 'outperform'.

[pj fozzie] 18/5/2018 10:08

Any specific news driving up the price today? Yet another welcome move up :-)

Cheers,
PJ

[pj fozzie] 08/5/2018 17:46

Interesting article in today's The Times, suggesting that DS Smith is set to benefit from the 'Anti Plastic' focus that seems to be sweeping the retail sector at the moment. DS Smith is well positioned to provide card based alternatives for packaging solutions that have traditionally been done in plastic.

I can't argue with the logic of that!

Cheers,
PJ

[suetballs] 05/5/2018 16:39

Been looking at these for while and took a few on Friday.
Suet

[philanderer] 01/5/2018 09:45

All in order :-)

[dr_smith] 03/4/2018 10:14

Thank-you for posting MirandaJ. It's is good see industry taking the initiative to address green issues. Gov't can provide £££;, laws and mechanisms but don't have the know how and expertise, so it falls upon those with specialised knowledge in the industry to be the catalyst for initiating change, that gov't can in turn support.

[mirandaj] 03/4/2018 09:16

Coffee Cups Recycling.

With 1 in 5 people visiting one of the UK’s 20,000 coffee shops every day, the recyclability of paper coffee cups has regularly been in the headlines. That’s why DS Smith is committed to providing a solution for how these cups could be recycled.

Following recent trials, we have announced that our paper mill in Kent has the capacity to recycle up to 2.5 billion coffee cups – that’s the amount we use in the UK every year.
We could recycle the cups at our mill but we still have some challenges to overcome, because there needs to be improvements in the infrastructure to segregate and collect coffee cups from consumers all over the UK.

That’s why we’re working with the coffee cup supply chain, policy makers, the recycling industry, and coffee lovers across the UK to build a sustainable, long-term recycling solution.

Campaign for coffee cups recycling

To answer key questions about coffee cup recycling, as well as exploring the next steps needed to develop a long-term recycling solution, we’ve produced a graphic, press release, short animation, and interview video. To join us in the campaign for better coffee cup recycling, take a look!

[churchtower] 07/3/2018 10:54

Very confident statement from Management. One really has to question the apparent manipulation of the share price recently. Once the short term traders have been removed from the scene and common sense returns hopefully we will see the upward trend establish itself again.

[philanderer] 05/3/2018 17:54

FTSE 100 movers: Smurfit and DS Smith gain on Goldman note

[phillis] 12/1/2018 10:59

Moorsie
Thanks for that
Proper research highlighting the accounting jiggery pokery on the value attributed to Interstate's assets

[moorsie2] 14/12/2017 09:50

NEW YORK, 13 December 2017 (Viewpoint) - excerpt from Vertical Research Partners

Operating Income Squeeze Behind Us – Last Thursday (December 7th), DS Smith reported its financial results for its fiscal year (April) 2018 half-year period (that ended on October 30th). The firm reported EPS of £0.17 vs our £0.15 estimate. More importantly, it seems that the immediately-preceding half-year fiscal period (F2H17 ending on April 30th), marked the apex of the short-term operating income/margin squeeze caused by the gradually-increasing containerboard prices in Europe. As a reminder, SMDS produces approximately two-thirds of its containerboard needs internally; it is thus exposed to a negative price-cost spread from the time that containerboard prices move up until it manages to pass this cost inflation to box prices. (The company also can be squeezed by surges in the cost of recyclable old corrugated containers – OCC.) During the F1H18, SMDS generated operating income of £209 million, representing a £27 million sequential increase; excluding the newly-acquired US business and the Plastics segment, the core European businesses generated EBITDA of £216 million vs £197 million in the immediately-preceding period (and £208 million in the year-earlier fiscal first half).

Strong Revenue Growth Led by Acquisitions – In F1H18 SMDS reported revenues of £2.8 billion, topping our £2.614 billion estimate. Sales grew 18.8% y/y and 15.5% sequentially. On a year-on-year basis, roughly one-third of the top-line increase (of £150 million) was due to acquisitions, led by Interstate’s £110 million in sales during the approximately two months of ownership. Results also benefitted from the tail-end of the British pound’s depreciation since the Brexit referendum – with the sharp currency decline commencing at the end of June 2016, midway through SMDS’ year-ago fiscal first period. We note that organic growth was also strong, around 7%, split roughly evenly between volume growth and price increases. On the volume front, we note that SMDS’ disclosed volumes increased by 5.2% on a per-day basis, Actual volume growth was 3.5%, still a solid figure, which was likely stronger than Smurfit Kappa’s in Europe (even though exact comparison is not possible due to the differences in reporting periods). Box price increases are progressing as planned, according to SMDS’ management, with prices increasing by 3.5% y/y by our estimate.

UK, Western Europe, USA Outperform – Operating income generated from the UK and Western Europe businesses topped our estimates by £7 million each, each adding +1 UK penny to the EPS variance. In the UK segment, the EBITDA margin of 10% was 80bps above our estimate, while sales of £550 million surpassed our £516 expectation. We note that this operating margin was the second highest since at least 2010 (when we started tracking semi-annual results), with the domestic business showing resilience and avoiding the margin compression witnessed elsewhere. In Western Europe, the EBITDA margin of 7.7% topped our estimate by 28bps, but sales were significantly stronger than expected, coming 10.3% above our forecast, at £716 million. We note that the US business was a smaller contributor to outperformance on an absolute basis, yet it saw the biggest relative variation: Sales of £110 million were 34% above our £82 million estimate, while operating profit of £15 million was 40% above our £11 million estimate.

Interstate Acquisition Bearing Fruit – We note that SMDS is already benefitting significantly by the acquisition of an 80% stake in privately-held Interstate. The business contributed £15 million in EBITA vs our estimated £11 million. SMDS also sees significant opportunity to increase corrugated box sales in the USA, largely by leveraging its client relationships in Europe. The firm is ready to deploy significant capital to the region in order to increase its box plant footprint and increase Interstate’s forward integration. Lastly, we highlight that SMDS is already moving containerboard from Interstate’s facilities to Europe (Southern Europe, in particular) – a move likely precipitated by the very tight kraft linerboard market conditions currently being experienced on the European continent. We also note that, according to SMDS’ financial report, had the acquisition been consummated on May 1st (the beginning of the fiscal period), the USA business would have generated an estimated EBITA of £42 million. We are not aware of the method by which SMDS arrived at this conclusion. However, we note that this figure indicates SMDS’s £15 million EBITA represented 35% of Interstate’s semi-annual EBITDA, achieved during a similar timeframe (SMDS owned Interstate for approximately 36% of the six-month period). That implies a “straight-line” income generation during those six months, something we find noteworthy given that box prices in the US did not fully rise (to reflect the spring containerboard price increase) until July – i.e., almost halfway through SMDS’s F1H18.

EPS Variance – It is noteworthy that all operating segments reported EBITDA above our estimates; amortization, on the other hand (which is added back to when computing adjusted EPS), was £42 million, £12 million ahead of our forecast. “Other” items, including the tax effect of the amortization estimate delta, contributed +1 penny to the variance. The weighted-average number of shares outstanding was also 3.2% higher than expected, as the equity offering for the financing of the Interstate acquisition took place earlier in the half-year period, thus lifting the weighted-average number, and shaving -1 penny from our EPS estimate.

EPS Estimates Move Higher – We are adjusting our expectations for SMDS based on its recent earnings release and outlook (including guidance for certain items). We believe that segment EBITDA margins, already better than expected in F1H18, will continue to creep up sequentially. We now forecast F2H18 EBITDA margins of 9.7% vs 9.6% previously, representing a big sequential increase. That being said, higher amortization expense results in lower operating margin; for F2H18 we now expect operating margin of 8.2% vs 8.6% previously. We are also significantly boosting our top-line expectations on the back of (1) a stronger contribution from the US, (2) additional acquisitions such as those in Romania, (3) stronger organic volume growth (now seen at 3.6% vs 2.5% previously), (4) the depreciation in the value of the British pound experienced in F1H18, and (5) the accounting treatment of the Interstate minority interest, which is adding £0.01 to EPS that would have otherwise been excluded as non-controlling interests. For full fiscal year 2018, we now estimate revenues of £6.308 billion vs £5.769 billion previously. The bottom-line: We are adding 3 pence to our F2018 adjusted EPS estimate, which is now at a Street-high £0.36 vs 0.33 previously. 2 pence of that increase reflect the F1H18 beat, with the remaining 1 penny coming from the increase in our F2H18 adjusted EPS to £0.19 vs £0.18 previously. Our F2019 and F2020, adjusted EPS are also boosted by 5 and 6 pence, respectively, to £0.41 (F2019) and £0.44 (F2020).

Price Target Lifted to £4.90 – We are increasing our price target for DS Smith’s shares by £0.20, to £4.90. Our price target reflects the average of our three valuation methods: P/E (12.0x), EV/EBITDA (8.0x), and DCF (6.8% WACC). We highlight that the lower-than-average P/E multiple we apply reflects the low quality of SMDS’s adjusted EPS number, which includes an add-back of all amortization and does not reflect earnings attributed to Interstate’s 20% owner. Adjusting for these items, our implied P/E multiple is 15x vs 13.5x used for the firm’s primary peer, Smurfit Kappa. Based on today’s closing price of £5.24, we see DS Smith’s shares having a slight downside, inclusive of the dividend.

Accounting Becomes Messier – We note that, historically, SMDS has been reporting its adjusted EPS as follows: EPS before non-recurring items as well as before amortization – with the latter representing a practice not followed by DS Smith’s US or European peers. Thus, we have been inclined to assigned a lower P/E multiple on the firm’s adjusted EPS as opposed to SKG in order to put our valuation work on more of an apples-to-apples basis. During this just-completed half-year period, the acquisition of Interstate created two interesting reporting conventions. The first one is the way the 20% of Interstate not owned by SMDS is accounted for. We had initially modelled income attributable to this 20% as belonging to the non-controlling interests (NCI). Instead, given the option of the counterparty (Interstate’s former controlling owners) to require SMDS to acquire the remaining 20% stake, this non-owned asset is recorded as a redemption liability with an initial value of £152 million. This means that adjusted EPS will not account for what essentially is due the NCI, and thus attributes to SMDS the entirety Interstate’s contribution. The second issue relates to the purchase price allocation of Interstate: We note that PP&E (which should represent a high percentage of assets in this industry) was written up from £272 million to just £286 million. Yet intangible assets – that are amortized – were increased from £1 mill to £258 million. We struggle to understand how the fair value of two mills, 12 box plants and one lumber mill is assigned just a £286 million valuation (approximately $370 million), while customer relationships are suddenly worth £257 million more! The implications of this move? Amortization expense will increase disproportionately to depreciation; with SMDS adding back amortization to adjusted EPS, adjusted earnings will be higher vs a scenario where PP&E was assigned a higher value (as the additional depreciation is not removed from adjusted EPS).

Smurfit Kappa Remains Our Preferred European CCM Stock – We consider DS Smith’s business as high quality and its organic volume growth strong; we are also more constructive on its prospects since the acquisition of Interstate which provided a new avenue for growth, increased the company’s backwards integration to board, and provided DS Smith with access to kraft (or virgin) linerboard. That being said, we are skeptical of the large number of adjustments made in computing its “adjusted EPS.” Buy-rated Smurfit Kappa (SKG; PT – €31) is our preferred European play on corrugated case materials (CCM), or containerboard, as it is more attractively valued; its stock is trading at just 10.8x 2018E EPS vs 15.8x for SMDS on an apples-to-apples basis, i.e., when we exclude from the latter’s adjusted EPS the added-back amortization and our estimated share of earnings attributed to its Interstate co-owner (as if the stake was reported as an NCI).

Bemis Not Likely a Priority – Last Monday (December 4th) it was reported by the NY Post that DS Smith was interested in acquiring plastics packaging producer Bemis (BMS; PT – $43). The US company, which derives slightly more than two-thirds of its revenue domestically, has been rumored to be an acquisition target since September, when speculation surfaced regarding a potential bid by Australian peer Amcor. The NY Post’s article highlighted details – such as Bemis’ active sale process run by investment bank Goldman Sachs. We questioned the validity of the article from the beginning: While Amcor could generate substantial synergies from such a combination, SMDS is primarily a producer of paper-based corrugated packaging; its plastics business is much smaller, with F2017 sales of £327 million compared with BMS’ calendar 2016 revenue of just over $4 billion. The strategic rationale of such a combination is weak in our view, given the lack of substantial synergies, SMDS’ lack of experience/focus on plastic packaging, and, lastly, BMS’ ailing organic growth vs the rumored acquirer’s solid volume expansion. We were pleased to hear SMDS management appear cool regarding Bemis during the post-earnings conference call.

Chip Dillon, Vertical Research Partners

[philanderer] 08/12/2017 14:45

Jefferies 'hold' tp 530p

reiterates

[gliderpilot2002] 08/12/2017 12:25

A bad set of numbers, little growth and cost pressures evident. Not really in line with last trading update. I sold.

[dondee] 07/12/2017 22:56

I didn't say I disagreed with anything. It was just corporate speak,pure and simple,and I have been to enough shareholder meetings now to know it when I hear it.

[phillis] 07/12/2017 17:40

indeed
specifically - with what did you disagree?