DS Smith PLC (LSE:SMDS) is set to release its full-year earnings on 20 June, with analysts at Jefferies forecasting an EBITA of £696 million, largely in line with the consensus estimate of £699 million.
Jefferies noted that DS Smith is currently trading at a 19% discount to the implied 455p-per-share value based on a potential combination with International Paper (IP).
This agreed-upon combination was thrown into doubt recently after Brazilian rival Suzano threw a takeover offer on IP’s table.
The DS Smith-IP combination is unlikely to go ahead if Suzano bids away IP, but Jefferies believes that “any offer less than mid-$50s wouldn't be taken seriously by IP's board, and we think IP shareholders are less willing to accept stock in (a) Brazilian pulp company”.
Even if Suzano does succeed in bidding away IP, Jefferies sees sustained tailwinds on DS Smith stock due to an improved industry volume-pricing backdrop and takeover interest from other suitors.
Forward guidance is expected to be limited given the prospect of a combination with IP, but Jefferies expects DS Smith to highlight improved box volumes and a 15-20% return on capital employed from discretionary investments.
The stock remains a buy with a 400p price target against a 381p publication price.