Broker tips: Future, Smurfit Kappa, DS Smith
Analysts at Berenberg hiked their target price on British media company Future from 2,280.0p to 2,600.0p on Tuesday after the firm stated it expects 2021 full-year adjusted underlying earnings to be materially ahead of expectations.
Berenberg made the target price move as Future's own upgrade was driven by a continuation of the strong trends seen in its media division in the first four months of the trading year.
Combined with the recent completion of its GoCo acquisition and the newly announced Australian acquisition of Mozo, Berenberg increased its full-year 2021-22 earnings per share estimates by somewhere between 14% and 23%.
The German bank also believes its 2021-22 forecasts to still be "very conservative" as they imply a slowdown in current organic trading and no revenue or marketing return on investment synergies from GoCo or Mozo, which it also believes could be "material".
JPMorgan Cazenove initiated coverage of corrugated packaging company Smurfit Kappa at 'overweight' on Tuesday with a 4,147.0p price target and 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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