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UBS sees DS Smith as 'well positioned' to benefit from packaging trends

The Swiss bank initiated coverage of the packaging manufacturer with a ‘neutral’ rating and a 336p price target

packaging
Analysts predicted the industry will see selling prices of corrugated packaging remain “relatively resilient”

DS Smith PLC (LON:SMDS) is “well positioned to benefit” from trends in the corrugated paper-based packaging market as well as recent acquisitions, according to UBS, though the Swiss bank said it thinks the shares are up with events as it began coverage of the FTSE 100-listed group with a 'neutral' rating on Thursday.

The investment bank forecasts “relatively stable underlying earnings” for DS Smith on average in the 2020 and 2021 financial years, with declining corrugated prices being offset by volumes growth and gains from acquisitions.

READ: DS Smith says financial performance in line with its expectations but flags up uncertain economic conditions

With prices of DS Smith's key input - containerboard - having dropped by around 20% from the peak in Europe, putting pressure on downstream corrugated board prices, UBS predicted that the industry will see selling prices of corrugated packaging remain “relatively resilient", only declining by around 2% this year and next.

Following the acquisition of €1.9bn Europac last summer, UBS's analysts said that they believe DS Smith “will take a pause in its acquisitive growth strategy, but longer term continue to consolidate the market”.

Seeing regulatory issues as “unlikely”, they said that based on calls, global brand owners see DS Smith “as one of the front runners in the industry and support further geographical expansion”, where the company could conceivably boost revenues by around 8% if it put a potential £800mln of M&A firepower to use in coming years.

UBS also initiated coverage with a 336p price target, based on a discounted cash flow analysis and peer group multiple valuations.

DS Smith shares were flat at 326.4p on Thursday morning. The firm will report its full-year results in a week's time.

Quick facts: DS Smith plc

Price: 351.8 GBX

LSE:SMDS
Market: LSE
Market Cap: £4.83 billion
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