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23 Feb, 2021 10:43

JPMorgan starts Smurfit Kappa at 'overweight'

smurfit kappa cardboard packaging
Smurfit Kappa

JPMorgan Cazenove initiated coverage of corrugated packaging company Smurfit Kappa at ‘overweight’ on Tuesday with a 4,147p price target, as it refreshed its views on overweight-rated DS Smith.

The bank said that overall, the companies have more similarities than differences, and it sees multiple short and long-term positives for both.

"These tailwinds appear to have become stronger over the last 12 months," JPM said. "We see somewhat greater re-rating potential at SMDS, given an expected end to M&A-related exceptionals from FY22 onwards.

"On SKG, while the rating is higher, the ability to invest organically at 17% return on capital employed is attractive."

JPM noted that demand growth has accelerated to around 6% in the fourth quarter, with paper prices also recovering. It said this should translate into higher box prices from the second quarter of this year onwards.

Meanwhile, the mid-term outlook on supply/demand is also supportive.

"Both groups benefit from e-commerce, being circa 15% of volume, though clearly growing fast. In addition, corrugated boxes are seen as being a more sustainable alternative to plastic packaging, providing a ‘slow burn’ tailwind to growth."


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Pilling and Co Stockbrokers Ltd. is not responsible for the content or accuracy of third party news articles and we may not share the views of the author or publisher.

We provide third party news for your convenience and information only and make no representation or endorsement whatsoever and hereby exclude all liability for any loss or damage that may be incurred by you as a result of your access or use. Please note that third party content may be subject to terms and conditions imposed by the third party owner of that content.