Smurfit and packaging rivals face lower demand in Europe on Covid-19

Europe’s packaging giants, including Irish multinational Smurfit Kappa, face a fall in demand for paper and packaging products this year amid the Covid-19 crisis, according to broker Davy.

Europe’s packaging giants, including Irish multinational Smurfit Kappa, face a fall in demand for paper and packaging products this year amid the Covid-19 crisis, according to broker Davy.

World packaging firms have long been regarded as bellwethers to the health of the world economy and their shares tend to rise or fall to reflect economic cycles.

Smurfit shares, which slid 4% in the latest session in Dublin trade, have fallen sharply in the past month as the extent of the virus crisis facing Europe became clear. Its gains in the past year have now been pared back to 10%, to value the European giant at almost €6.4bn.

Davy said that Smurfit and European rivals, including DS Smith and Mondi, will face reduced demand.

“While there is a sense that there has been little effect to date on the European packaging names, we believe it is prudent to reduce our corrugated demand growth forecast for 2020 from 2% to zero,” the broker said, even as “valuations, in particular those based on free cashflow, remain very attractive”.

It pared its previous forecasts for full-year earnings in 2020 and 2021 at DS Smith and cut forecasts at Mondi and also reduced its forecasts at Smurfit for both years.

However, Davy said it still expected containerboard prices to rise. “Despite the increased market uncertainty, there is still a strong sense that containerboard prices will rise in the coming weeks,” the broker said.

“It is expected that kraft liner prices could increase by €50-€60 a tonne while recycled containerboard prices could rise by €30-€40 a tonne.

“We have not assumed these increases nor the consequent impact on corrugated prices in our revised forecasts. There is therefore upside over time if these increases are successfully implemented,” it said.

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