Smurfit Kappa

Smurfit Kappa is the biggest player in the corrugated packaging industry in Europe and Latin America, with a strong emphasis on cost efficiency and capital discipline. Its integrated structure helps to ensure stabilised earnings, and the next two years look set to show improved earnings and strong cash flow which should result in significant deleveraging, from net debt/EBITDA of 3.5x at YE10, to 2.2x at YE12.. This gives a real opportunity for the company to balance between acquisitions and capital distribution. 

Despite a blip in macroeconomic indicators for the sector, the supply/demand balance remains favourable. Increases in European capacity are limited and any economic improvements should boost corrugated volumes. With operating rates of ca. 93% in Western Europe, Smurfit Kappa should successfully pass on inflationary costs to their customers. Further market consolidation is likely in Europe and this will support the valuation of the European packaging segment.

Smurfit Kappa's Latin American operations are highly profitable and the outlook is excellent. Deutch Bank have forecast 2011-2013 CAGR of 6% for containerboard demand in the region. Smurfit Kappa's low-cost base and market-leading positions means that it has healthy margins. Smurfit Kappa shows a lack of presence in Brazil and other key Latin American markets, so acquisition could be the way forward when their balance sheet improves, maybe in 2012.

Posted Date: 21st Jul 2011