Smurfit Kappa Group has ‘flexibility’ to spend up to €1bn on acquisition deals

Dublin-based paper and packaging group Smurfit Kappa has the ability to spend up to €1bn on acquisitions this year without harming its balance sheet or breaching its lending covenants, management has said.

Chief executive Tony Smurfit yesterday said the group is effectively on the acquisition trail again after using last year to bed in €186m worth of deals carried out in 2015. He said the pipeline of possible deals is increasing, but the €1bn figure represents the group’s current spending capacity rather than its definite spending target.

He was speaking after the group’s agm — which saw directors Gary McGann and Thomas Brodin retire from the board — and the publication of its first quarter results.

Smurfit Kappa’s shares inched up in Dublin yesterday, but rose by nearly 2% in London on the back of those results — which showed a rise in revenue but a drop in earnings. Nevertheless, that 1% year-on-year fall in EBITDA — to €278m — was still ahead of market expectations. Revenue was up by 6% at €2.13bn, but pre-tax profit fell by 15% to €109m and earnings per share for the quarter were down 19%, year-on-year, at 31.5c.

Geographically, Smurfit said it saw “solid” underlying revenue growth in both Europe and the Americas, with European earnings ahead by 2% at €213m.

“Overall, this is a pretty solid first quarter for Smurfit Kappa. The focus for the remainder of the year in Europe will be progress on corrugated box prices to help drive margins up and the evolution of the wider pricing backdrop for the containerboard market,” said David O’Brien at Goodbody Stockbrokers.

Mr Smurfit said the group is “increasingly well-positioned to capitalise on a positive pricing environment in 2017” and has “great confidence” for its future.

“Based on current forecasts, the company is expected to generate well over €400m of free cashflow this year, implying a free cashflow yield of almost 8%. Positive earnings momentum combined with potential value creation from the group’s capital allocation strategy provides significant valuation upside,” said Barry Dixon of Davy Stockbrokers.


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