DS Smith Half Yearly Results

[idpickering]

Highlights
• Record Group profitability and return on sales despite economic headwinds
o Market share gains driven by multinational FMCG and e-commerce customers
o Customers increasingly valuing our sustainable packaging solutions, reflected in good pricing and return on sales up 110 basis points
• Europe – good organic profit growth
• Europac - excellent progress and strong initial contribution
o Packaging turnaround to profitability
o €70m synergy programme fully on track
• Good US domestic performance offset by impact of export paper pricing
o Indiana greenfield box plant now operational
▪ Transforms US capability and customer offering
▪ Consistent with strategy to reduce US long paper exposure
• Strong cashflow and balance sheet
o Plastics disposal (net proceeds c. £400m) expected to complete around the calendar year end
o Strong liquidity profile: €600m, seven year bond raised at 0.875%
• Future growth prospects continue to benefit from the increased customer focus on sustainability (including plastic replacement) and e-commerce
“Our leadership in e-commerce and sustainable packaging solutions has enabled us to perform well despite a difficult macro environment and volatility in paper pricing. The continued growth in margin and strong pricing discipline has been particularly pleasing as we deepen our relationships with FMCG customers and grow market share.
We continue to capitalise on the strong long-term growth drivers of fibre-based packaging, with our industry-leading innovation driving differentiation in the market. Assuming current macro-economic conditions prevail, we anticipate an acceleration of volume growth in the second half of the year which, together with the resilience of our business model, supports our expectation of further growth in the
year.”

And later;

Dividend
The Board considers the dividend to be an important component of shareholder returns. In considering dividends the Board will be mindful of the Group’s leverage, earnings growth potential and future expansion plans. As first set out in December 2010, our policy is that dividends will be progressive and, in the medium term, dividend cover should be on average 2.0x to 2.5x through the cycle.
The Board declares an interim dividend for this half year of 5.4 pence per share (H1 2018/19: 5.2 pence per share). This represents an increase of 4%, demonstrating the confidence of the Board in the outlook for the Group. The dividend will be paid on 1 May 2020 to ordinary shareholders on the register at the close of business on 14 April 2020.

https://www.dssmith.com/contentassets/9 ... elease.pdf

[NeilW]

Only five months to pay the dividend.

Anybody calculated the collection ratio for DS Smith?

[idpickering]

This hasn’t been well received by the market it seems with the SMDS sp down 4% on opening. This will not alter my intention to continue holding the share though. I have a full holding and don’t intend buying more of this stock currently.

Ian.

[Bouleversee]

Did you hear the interview on the Today programme this morning? I am inclined to top up at this price. The s.p. has gone up quite a lot in the past 6 months and I think the drop is probably due to profit taking. I should have thought that with supermarkets feeling obliged to drop plastic packaging, they could hardly fail to do well from hereon. However, the goods we buy will cost slightly more to reflect the more expensive packaging. Good and increasing yield, well covered and increasing dividends, reasonable p/e. What's not to like? (No doubt someone will spot something to prove me wrong )

[Arborbridge]

This hasn’t been well received by the market it seems with the SMDS sp down 4% on opening. This will not alter my intention to continue holding the share though. I have a full holding and don’t intend buying more of this stock currently.

Ian.

Last time I looked (this morning!) the forward yield was 4.4%, so it wouldn't even come on to my radar as my average yield is 5.5%. Given that fact, I wouldn't look much under 5% unless it was ULVR, RB or DGE at 4%
Importantly, Smith's is already at 1.16% my median weight: I'm happy with this, and happy to hold a well placed company.

Arb.

[Bouleversee]

This hasn’t been well received by the market it seems with the SMDS sp down 4% on opening. This will not alter my intention to continue holding the share though. I have a full holding and don’t intend buying more of this stock currently.

Ian.

Last time I looked (this morning!) the forward yield was 4.4%, so it wouldn't even come on to my radar as my average yield is 5.5%. Given that fact, I wouldn't look much under 5% unless it was ULVR, RB or DGE at 4%
Importantly, Smith's is already at 1.16% my median weight: I'm happy with this, and happy to hold a well placed company.

Arb.

There was a big article about RB in The Times Business this a.m. headed "Headaches in the health business" which you may be able to get if you Google it and which was not very encouraging. It concluded "The shares, up 24p, or 0.4% at £59.28 yesterday, might trade below some of their peers, but they are hardly cheap. Valued at 17.8 times consensus forecast earnings for a dividend yield of about 2.9 per cent, they are not hugely tempting at the moment."

It will be interesting to see whether they have been a better bet than SMDS in a year from now. I should have thought SMDS, assuming they take advantage of the switch out of plastics which they obviously are planning to do, would be a better prospect but what do I know? There is a Webcast of the meeting today which you can listen to.

[Bouleversee]

Closed 7.5% down. I don't understand why.

[idpickering]

Closed 7.5% down. I don't understand why.

Me neither Lorna, but it won’t budge me from my position. I’m guessing some investors took some profits off the table. The share has performed well lately. I’m happy to continue being a DS Smith shareholder, for the long term. Short term profit taking isn’t the HYP way imho.

Ian.

[johnstevens77]

4.4% yield covered 2.1 times, what's not to like? However, at 5.3% of my portfolio I will not be topping up either. I first purchased in April 2006 @181p, and left them alone until last year when I split the holding with my wife and then sold the lot for capital gains to reinvest in my ISA.

john

[tjh290633]

Typical market reaction to some comments made. The dividend goes up and the price goes down.

It seems to be happening when companies convert to IFRS 16, which leads to results not comparable with the previous periods.

TJH

[dealtn]

Closed 7.5% down. I don't understand why.

Little organic growth, ROACE below target...

I commented on the other board, and the company has joined the list of those to investigate further (although not near the top).

[Bouleversee]

I suppose it comes down to whether you are judging on past performance or estimating future prospects in changed circumstances now that the environmental situation has come to the fore and something must be done to arrest further degradation. If the company can seize this opportunity, they should do well but of course others may beat them in the race. Time will tell.

[dealtn]

I suppose it comes down to whether you are judging on past performance or estimating future prospects in changed circumstances now that the environmental situation has come to the fore and something must be done to arrest further degradation. If the company can seize this opportunity, they should do well but of course others may beat them in the race. Time will tell.

The shift from "plastic" to "paper", and the general awareness of the environment isn't a new thing. Nor is the shift from "bricks" to "clicks", and the increased demand for packaging associated with it. Yet organic growth is anaemic, and negative in some regions, whereas you would expect such macro conditions to already be assisting the top line. As I said in the other place.

[Bouleversee]

Dealtn:

Well, it's only in the past year or so (during which SMDS got rid of its plastics division^) that supermarkets have started being active on this front and the Thunberg-inspired protest groups have become active and there is still a long way to go. No point in arguing whether SMDS will be up to the challenge; we'll have to wait and see but I am happy to give them a chance. They are doing a lot better than Mondi, which I also own, and their spokesman was reasonably impressive.

*possibly prematurely since I have just heard someone talking about strides having been made in bio-degradable plastics, though it's not clear whether these will still shed particles and there will always be ignorant morons who will leave them on beaches etc.

[Bouleversee]

FWIW, IC has SMDS as a hold today so perhaps that's what I'll do and not top up further till we see which way the wind is blowing.

[kempiejon]

FWIW, IC has SMDS as a hold today so perhaps that's what I'll do and not top up further till we see which way the wind is blowing.

If you have money ready for the HYP some mioght say that with a yield of 4.6% vrs the index's 4.5% there are better incomes available. But I like their history. I have held SMDS for a long time, they were my first 2008 crisis HYP cutter to come back above pre cut levels and have shown an inflation beating increase in dividends, compounded at over 20% annually for a decade, slowing perhaps a bit now but as a long term income machine one might be prepared to chose them over the highest safe yielder one could find for the prospect of income growth.

[Bouleversee]

I see the s.p. has recovered over 5% today and I am up 8.50% on my book cost for holdings bought in July and October plus a pretty good dividend so I am more than happy to hold. I must learn to trust my own instincts. I agree with Kempie; dividends are not the only fruit, welcome as they are.