Given the prolonged headache plastics have caused to policymakers, it would seem obvious that packaging replacements would be well-established investments by now.
That has not yet transpired. Beyond the COVID-induced surge in demand for transport-linked services, new packaging solutions appear undervalued.
But all the conditions now appear there for a bull market in packaging as technological advancements meet demand, a trend highlighted by recent earnings reports and brokers notes.
The US$1trn packaging market is yet to crown a clear successor to harmful plastic and brokers now sniff an opportunity in sustainable solutions.
The clamour away from plastics has left a vacuum likely to be plugged by canning and paper companies as the most obvious reusable materials, an opportunity yet to be fully appreciated by investors, according to a note by Credit Suisse.
The broker expects the transition from plastics to paper to exceed the impact e-commerce had on the industry, which caused growth between 1% and 1.5% per year.
It indicated that substitution to sustainable materials will accelerate and last several years, with beverage cans rising by around 3% per year, and multiple end-uses for paper-based packaging growing by around 1.2% per year.
Expansionary plans are buoyed by healthy demand which promises to continue, as consumer-facing brands pre-empt and follow government intervention, which a 2020 McKinsey report said ranged from sustainability strategies to outright bans on single-use plastic.
In industry, the globe’s top 10 global fast-moving consumer goods companies pledged to reach 100% sustainable packaging by 2025.
Projections for growth in the sustainable packaging industry vary across a positive consensus, with Mordor Intelligence reporting annual growth of 7.5%, while Research and Markets forecast annual US growth at 5%.
Smurfit Kappa (LSE:SKG), one of Credit Suisse’s picks to outperform on this transitional wave, gave credence to that outlook, and expectations of packaging transformation, with resolute FY 2021 earnings published today.
The paper-based corrugated top-line growth of 18% helped underlying earnings (EBITDA) jump by 13% in an apparent sign of continued demand for alternative packaging.
Russ Mould, head of investments at AJ Bell, said: “Smurfit Kappa helped lift its industry peers with guidance for rising prices that should benefit the entire space amid strong demand.”
The company promised more investment in 2022 in order to capitalise on its gains, with opportunities eyed through investment exceeding €300mln on paper capacity and sustainability projects.
FTSE 100 packaging competitor, DS Smith saw its shares rise by 2.5% in morning trading following Smurfit’s release, in what looked like a continuation of a trend of investors making up for lost time in the sustainable packaging sector.