UPDATE: DS Smith Shares Up On In Line First Half, Andopack Acquisition
LONDON (Alliance News) - DS Smith PLC shares were up on Thursday after the company said its first half was in line with expectations, with strong growth in all regions, and said it has struck a deal to buy Spanish corrugated board producer Andopack for GBP35 million, despite analyst concerns that the deal will not prove the catalyst for growth the company needs.
The FTSE 250-listed recycled packaging company said its performance in the six months to the end of October came in line with expectations, with like-for-like corrugated box volume growth rising year-on-year.
The group said its outlook is positive, despite problems in many of its markets, and said it expects to continue to perform in line with its medium-term financial targets.
DS Smith also said it has struck a deal to buy Andopack, a Spanish corrugated board provider, to provide it with a direct market position in Spain. The company said it expects the total consideration for the acquisition to be around GBP35 million. The deal is being financed from the company's existing cash resources, and it said it expects the acquisition to deliver a return on capital above the cost of capital in its second year of ownership.
"In the first half of this financial year, we have continued to make good progress with our customers, benefiting from our differentiated commercial offering. We have again delivered volume growth ahead of the market, together with improved margins and returns," said DS Smith Chief Executive Miles Roberts.
"The acquisition of Andopack in Spain is an exciting development for DS Smith as we continue to strengthen our pan-European customer offering. Andopack has high quality assets and we look forward to growing it further as we expand in this attractive market," Roberts added.
DS Smith shares were among the best performers in the FTSE 250 on Thursday, up 3% to 274.5 pence.
But Jefferies is retaining a cautious outlook the company, saying that despite its solid trading update, the acquisition of Spanish peer Andopack was not the kind of deal it needs.
The broker said the GBP35 million acquisition of Andopack does not look like the kind of catalyst for growth that the business needs. Jefferies said that while there are European M&A opportunities in play, DS Smith is facing intense competition from both trade and private equity rivals.
"With SCA synergy benefits dissipating, DS Smith may struggle to deliver further margin expansion without mill portfolio investments/disposals," the broker said. DS Smith bought Swedish packaging company SCA Packaging in 2012 for EUR1.6 billion.
In the absence of a "more material M&A catalyst", Jefferies has retained its Hold recommendation and 310 pence price target on the stock.
By Sam Unsted; firstname.lastname@example.org; @SamUAtAlliance
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