DS Smith justifies promotion to FTSE 100 as it reports solid first half results

Helal Miah explains what DS Smith's results mean for investors.

Article updated: 7 December 2017 10:00am Author: Helal Miah

  • International plastic packaging company posts increases in growth, revenues and operating profits in first half
  • Changes in consumer preferences and growth of e-commerce main drivers of volume growth
  • The Share Centre recommends DS Smith as a ‘buy’ for higher risk investors

As DS Smith updates the market Helal Miah, investment research analyst at The Share Centre, explains what it means for investors:

Organic growth, acquisitions and a favourable structural and economic environment fuelled DS Smith into the FTSE 100 in the latest quarterly reshuffle and looking at their half year results published this morning we can see why. Organic growth alone was 5.2% while group revenues increased by 19% to £2.8bn, including favourable currency movements. Adjusted operating profits rose by 11% however, reported pre-tax profits fell by 1% to £144m due to adjusted items and higher amortisation rates on acquisitions.

Overall these are good results reflected in the reaction of the shares opening up by nearly 4% this morning. Volume growth has been driven by structural shifts including changes in consumer preferences, the increased relevance of packaging at the point of sale and the continued growth of e-commerce. The group has also benefitted from the improvement in paper prices while integration of acquired businesses is ahead of expectations with cost synergies expected.

Going forward, management still expect good progress. Indeed, they expect the completion of two proposed acquisitions in Romania by the end of January and are still investing in capacity expansion programmes in both Europe and the US.

We have recommended DS Smith as a ‘buy’ for investors seeking a balanced return and willing to accept a higher level of risk, and we continue to like the company. The reason for this is due to the structural growth, management’s ability to deliver on the cost cutting front and the integration of acquisitions. Moreover, the group offers a steady and progressive dividend and investors should recognise that the interim div has just been raised by 7% and management intend to keep cover in the comfortable region between 2-2x.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment. 

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