Smurfit Kappa (SKG)  £31.28
Gain to date: 6.4%
Original entry point: Buy at £29.40, 1 October 2020

A strong third quarter update showed that Smurfit Kappa (SKG) had recovered well from Covid-related disruption earlier this year and a second interim dividend implies that management confidence is growing.

The company achieved third quarter earnings before interest, tax, depreciation and amortisation (EBITDA) of €390 million. Nine-month revenues reached €6.3 billion while EBITDA was €1.12 billion, achieving a margin of 17.8%.

With its business strongly weighted towards fast-moving consumer goods companies, Smurfit Kappa is well positioned to benefit from enhanced growth and accelerating trends in e-commerce.

Adapting to new ways of working, remotely and within its operations the packaging company said it was working on opportunities to increase operating efficiencies.

Assuming no dramatic change to working practices, the company expects to deliver full-year EBITDA in the range of €1.46 billion to €1.48 billion, around 1% to 2% above analysts’ consensus estimates prior to the announcement.

‘That it can deliver all-time high margins in the teeth of a pandemic is impressive,’ says broker Davy. ‘That it is willing to reward shareholders and employees reflects the confidence in its financial position and the future. This is confirmed by its full year guidance, which seems typically prudent. The current valuation of the stock does not reflect this resilience or the improving dynamics                             in the industry.’

SHARES SAYS: A solid update, keep buying.

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