Interim results from DS Smith PLC (LSE:SMDS) produced a rapturous reaction from analysts at Peel Hunt but not from the market.
"Sometimes you just have to tip your hat and call out a remarkably strong performance," the City broker's analysts said, lamenting the fact that they had not been more positive than their 'add' recommendation "when the operational and cash performance as well as the valuation merit considerably more".
DS Smith's adjusted operating profits (EBITA) of £418mln was well above October's trading update guidance of £400mln, despite underlying volumes falling 3%, which was weaker than expected.
Cardboard box volumes declined by £64mln but £950mln of increased selling price offset a £779m increase in costs, while a three-year energy hedging programme and external electricity sales kept the energy cost increase to £158mln.
The FTSE 100-listed provided new full-year EBITA guidance of over £800mln above its previous expectations compared and consensus forecasts of £750mln as volumes improve and margins move back over 10%.
Leverage of 1 times is "impressive", said the analysts, although slightly artificial given the energy comments, "is a decade low and brings capital allocation front and centre", which they said "will be an interesting introduction for the incoming finance director".
Increasing last year's dividend by 25% would give 18.5p, so a yield of 5.8% on a PE ratio of 8 times.
"Cheap," the analysts concluded.