Smurfit Kappa PLC (LON:SKG) ) is a best-in-class company with a best-in-class management team, according to Berenberg.
The German investment bank initiated coverage with a ‘buy’ recommendation with a price target of €47.50 as it expects the packaging producer will deliver its plans of capitalising on growing demand trends, improving its impact on the circular economy and creating a more efficient business.
READ: Smurfit Kappa, DS Smith both ‘overweight’ for JP Morgan in healthy paper packaging sector
The FTSE 100 firm had a resilient 2020, with underlying earnings (EBITDA) falling only 8% while returns remained around or above 15% for the last seven years, despite a volatile macro environment.
Analysts believe Smurfit Kappa’s profitability will benefit from rising paper and corrugate prices as it has a market-leading position in Europe and an excellent record in margin stability with its balanced paper exposure minimising volatility.
Margins are expected to expand to over 19% by 2023 as demand will outweigh supply, driving prices up.
“We believe the circular economy and e-commerce demand trends are here to stay, after accelerating in recent years. Online sales penetration increased by c30% in 2020, supporting significantly more demand for corrugate packaging, a key factor in its outperformance versus GDP,” analysts noted.
“Coupled with rising consumer and corporate awareness of more sustainable consumption, we expect demand for corrugate to continue to outperform GDP. SKG, as a market leader, is best positioned to capture this growth.”
Shares dipped 1% to 3,356.09p on Wednesday morning.