DS Smith PLC (LON:SMDS) shares fell on Thursday as the firm revealed that it is exploring a sale of its Plastics division as it reported a jump in adjusted profit in the first half when it sold more boxes at higher prices.
The FTSE 100-listed packaging company saw its adjusted operating profit from continuing operations – excluding Plastics - increase by 32% to £304mln for the six months to 31 October, up from £231mln a year earlier.
The profit increase came as the group’s half-year reported revenue from continuing operations rose by 15% to £3.073bn, while its return on sales increased by 120 basis points to 9.9%, with organic volume growth of 3.2%.
The company said its £1.4bn Europac acquisition – unveiled in June - is expected to complete around calendar year-end, with the business’s reported performance to Q3 2018 in line with expectations and integration planning well advanced.
Miles Roberts, DS Smith’s group chief executive said: “We have strong momentum in the market, delivering good top line growth and substantially increased profit levels. We continue to win market share through our strong FMCG presence and our leadership in both e-commerce and sustainable packaging.”
He added: “DS Smith is extremely well positioned to capitalise on these ongoing growth trends and we are confident about the future prospects for the business."
The group hiked its interim dividend by 14% to 5.2p.
In late morning trading, DS Smith shares were 4.6% lower at 311.40p.
Graham Spooner, investment research analyst at The Share Centre, commented: “Management has strategically reviewed its Plastics division, which has been struggling and is now exploring options for a potential sale of its plastics division.
“The market may be concerned that the growing negatives surrounding plastics might lead to a lower sale price.”
He added: “Despite weak markets, investors will be disappointed that these numbers have not led a rise in the share price, concerns over over-supply next year and the economic outlook appears to be concentrating the mind.
“Nonetheless, we maintain our ‘buy' recommendation due to its record of growth, good history on making and integrating acquisitions, cost-cutting plan and healthy dividend growth.”
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