Jack Sherwin - Aspiring Stock & Forex Market Analyst
I am working to build a published portfolio of stock and forex analysis with Samuel and Co Trading. I will be posting my analysis weekly, so keep your eyes peeled for my market outlook. I would like to open my analysis for discussion and feedback from the community.
Stock in question: LSE:SMDS (DS Smith)
Over the past couple of weeks, I have been keeping an eye on the UK based packaging company DS Smith. They are a leading provider in corrugated packaging in Europe and of specialist plastic packaging worldwide, supported by paper and recycling operations. They are present in 37 countries worldwide employing around 32,000 people. Their customers include huge companies such as RedBull, Nestle, Unilever, Samsung, and Amazon. DS Smith traces back to the 1940s when the company was founded in East London by the Smith family, eventually being listed on the LSE in the late ‘50s.
Outlining their purpose as “redefining packaging for a changing world” DS Smith hold a great attitude towards sustainability in their services and products. They have outlined their vision to be the leading supplier of sustainable packaging solutions. My reaction to this is one of positivity since I see a significant correlation between positive market sentiment and companies displaying proactivity to being sustainable in this changing time of our being. I like to see companies ‘looking’ further into the future than just what ROI they can achieve. As a new generation of investors come into the market, like myself, I believe we will see a focus on sustainable companies.
Source: TradingView Source: Simply wall street
As we can see here from the intrinsic value based on future cash flows, DS Smith is currently at a 32% discount which is less than its competitors in this market, however, it is still considered a good percentage discount. Furthermore, their future earnings growth are expected to come in at 20% in the next 1-3 years.
Source: Hargreaves Lansdown.
Alongside this, we can see the few brokers who are watching this stock are positive with 1 neutral and 3 strong buys with price targets of 370.00p, 430.00p, and 460.00p
Looking further into the fundamentals, we can see that the net worth vs historic debt is heading towards a healthier percentage of 66.5% as of July 2018. We can also see here that debt is well covered by operating cash flow, with cash flow being 23% of debt at £435M and £2,147M respectively.
Source: Simply Wall Street.
Since June 2018 we have seen a significant downside in the stock price. Contributing factors may be the unveiling of their new customisable packaging solution for e-tailers. This helps reduce packaging size and associated costs by up to 60%. The programme known as ‘made2fit’ allows for cost-cutting abilities such as void-fill, storage, shipping and order administration. In addition, CEO Miles Roberts told Reuters in an article about Brexit slowing customer spending that “They (customers) are either withholding or in some cases the investment is going overseas. And as our customers move, we have to respond”.
As of early 2019, we have started to see some stable growth in the stock as a result of announcing a dividend increase from 4.6 to 5.2 pence per share, an increase of 14% against the previous year’s dividend, announced in early December. In addition, we also saw half-year earnings ended October 31 with a revenue increase from £2,663M to £3,073M. Operating profit of £201M vs £157M a year ago and profit for the period was £130M against £107M a year ago. These positive earnings boosted sentiment towards the company, seeing some strong buying in the weeks to come. Alongside these earnings reports, DS Smith said it was exploring offers for a potential sale of its plastics division.
On Wednesday the 6th of March, Liqui-box Corporation reached an agreement to acquire the plastics division of DS Smith for an approximate value of £450M. The transaction is subject to customary closing conditions including regulatory approvals, with completion expected to take place in the second half of 2019. As we can see here from the FTSE100 (DS Smith is a constituent), there has been some investors placing their capital within UK stocks after the drop we saw in Q4. This is a great indicator of sentiment towards UK stocks moving forward. As investors see some more clarity with Brexit negotiations, it will be interesting to see how this stock moves in the coming months. I hope you have enjoyed my analysis, let me know your thoughts.
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