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DS Smith (SMDS) Finals

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daveh
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DS Smith (SMDS) Finals

#146401

Postby daveh » June 18th, 2018, 9:05 am

Can be found here:
http://www.investegate.co.uk/article.as ... 6709R&fe=1
Highlights

· Strong organic box volume growth of +5.2%
o Growth in all regions
· Continued delivery in line with medium-term targets

o Strong margin performance despite significant input cost headwinds

o Sustainable financial returns
· Continued leadership in e-commerce packaging
· Excellent performance by North American business

o Delivering well ahead of initial expectations

o Returns greater than WACC in initial period of ownership
· Further accretive bolt-ons in Europe and US

o EcoPack and EcoPaper (Romania) in March 2018

o Corrugated Container Corporation (US) in May 2018
· Proposed acquisition of Europac

o Highly compelling strategic rationale and financial returns
· Strategic review of Plastics division underway
· Good momentum into 2018/19




and
Dividend

The proposed final dividend is 9.8 pence (2016/17: 10.6 pence), will be paid on 1 November 2018 to ordinary shareholders on the register at close of business on 5 October 2018, including those shares to be issued in the rights issue.


For me that will be a slight cut in cash dividend if I don't take up the rights, but I don't know if it is actually a cut in dividend as it will be paid to shares acquired in the rights issue and if I don't take up the rights (I am probably going to though) I will have a smaller stake in the company.

Gengulphus
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Re: SMDS Finals

#146413

Postby Gengulphus » June 18th, 2018, 10:02 am

daveh wrote:
Dividend

The proposed final dividend is 9.8 pence (2016/17: 10.6 pence), will be paid on 1 November 2018 to ordinary shareholders on the register at close of business on 5 October 2018, including those shares to be issued in the rights issue.

For me that will be a slight cut in cash dividend if I don't take up the rights, but I don't know if it is actually a cut in dividend as it will be paid to shares acquired in the rights issue and if I don't take up the rights (I am probably going to though) I will have a smaller stake in the company.

It looks unlikely to me to be a real dividend cut, as the ~8% reduction of the final dividend is much smaller than the ~25% minimum I would generally expect from a real dividend cut, let alone a real dividend cut plus a rights issue adjustment. So it looks highly likely to me to be just a rights issue adjustment. But I won't be able to calculate a reasonable amount for the rights issue adjustment until after they've released full details of the rights issue - so far, we've basically only got the fact that there will be one and how much it's due to raise, which is not enough for the calculation.

We shouldn't have long to wait for the full details - they said early this month in https://www.investegate.co.uk/smith--ds ... 00101517Q/ that "DS Smith expects to publish a prospectus and launch the Rights Issue at the time of the announcement of its full year results in June 2018.", so it's probably just a matter of hours or maybe a day or two.

Gengulphus

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Re: SMDS Finals

#146580

Postby idpickering » June 19th, 2018, 7:21 am

Announcement re: Rights Issue



FULLY UNDERWRITTEN RIGHTS ISSUE RAISING PROCEEDS OF c. £1,000 MILLION TO PART FUND THE ACQUISITION OF EUROPAC



On 4 June 2018, DS Smith Plc ("DS Smith", or the "Company") announced the proposed acquisition of Papeles y Cartones de Europa, S.A., known as Europac ("Europac"), a leading Western European integrated packaging business (the "Acquisition").



The offer price of €16.80 per Europac share (the "Offer Price") values the entire share capital of Europac at €1,667 million (£1,453 million), with an implied enterprise value of €1,904 million (£1,659 million) and which represents an EV/EBITDA multiple of 8.4 times Europac's LTM EBITDA to 31 March 2018 including the full run rate of pre-tax cost synergies.



The Acquisition will be conditional on the approval of the shareholders of the Company (the "Shareholders") at a general meeting of the Company which is to be held on 10 July 2018 (the "General Meeting"). A notice of the General Meeting will be released with the circular and prospectus (the "Prospectus"), which are expected to be published today, subject to approval by the UK Listing Authority. Capitalised terms used but not defined herein have the meanings assigned to them in the Prospectus. The directors of DS Smith (the "Directors") unanimously consider that the resolution to approve the Acquisition is in the best interests of DS Smith and its Shareholders and recommend that Shareholders vote in favour of the resolution.



Today, DS Smith announces a fully underwritten rights issue, which is intended to raise proceeds of approximately £1,000 million (approximately €1,148 million) net of expenses, to be used to fund the Acquisition (the "Rights Issue").



The Rights Issue will result in the issue of 293,064,829 new ordinary shares (representing approximately 27.3 per cent. of the existing issued share capital of DS Smith and 21.4 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue) (the "New Shares"). The Rights Issue will be on the following basis:



3 for 11 Rights Issue at 350 pence per New Share.




https://www.investegate.co.uk/smith--ds ... 16028205R/

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Re: SMDS Finals

#146584

Postby Ivyrobert » June 19th, 2018, 8:06 am

It has been a great investment in the last 10+ years. Yesterday the results show intangible assets nearly equalling net assets which may be typical of high growth companies but it used to make me nervous. I will probably go with the rights issue anyway

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Re: SMDS Finals

#146652

Postby Gengulphus » June 19th, 2018, 12:40 pm

idpickering wrote:Announcement re: Rights Issue


FULLY UNDERWRITTEN RIGHTS ISSUE RAISING PROCEEDS OF c. £1,000 MILLION TO PART FUND THE ACQUISITION OF EUROPAC
...
3 for 11 Rights Issue at 350 pence per New Share.


https://www.investegate.co.uk/smith--ds ... 16028205R/

A further detail relevant to any calculations about this is that the shares are expected to go ex-rights on July 10th, which (as always with rights issues) is also when the rights are split off from the shares and become separately tradable.

So what happens at that point is that each 11 cum-rights shares become 11 ex-rights shares and 3 rights (*). Each right can be expected to have a market value very close to the market value of an ex-rights share minus 350p (**), and what happens overnight between July 9th and 10th is not expected to alter the values of holdings beyond normal stockmarket price fluctuations. So if C is the cum-rights share price and X the ex-rights share price, one can expect that:

11C = 11X + 3(X-350p)

That gives 11C = 14X - 1050p, so 14X = 11C + 1050p, or X = (11C+1050p)/14. That's the formula that allows one to calculate the theoretical ex-rights share price ("theoretical" because those stockmarket price fluctuations are likely to perturb it a bit in reality) from the cum-rights share price, and is what the announcement's statement that:

"The Issue Price represents a 30.9 per cent, discount to the theoretical ex rights price based on the closing middle market price of 549.6 pence per Share on 18 June 2018 (being the last business day before the announcement of the terms of the Rights Issue)."

is based on: for C = 549.6p, the formula gives a theoretical ex-rights share price X = 506.83p, and the issue price of 350p is 30.9% below that. Note that that discount is not a shareholder incentive: you have to give up 350p and a right (which on the same basis can be expected to have a market value of 156.83p) to end up with an extra share. You can expect to save a little bit in trading costs (no stamp duty, and with many brokers no commission or other fee either) compared with just buying shares on the market, but only a little bit. (So why the discount, you might ask - the answer is that just 350p is the price the underwriters might be obliged to pay if things were to go very badly for the share price in the next few weeks. The subscription price will have been chosen to be low enough to make the underwriters willing to take the risk of being forced buyers for an only-halfway-unreasonable fee... In short, rights issue discounts are underwriter incentives, not shareholder incentives!)

The other figure one can get from that calculation is how the value of the holding is split when the shares go ex-rights. The 11 cum-rights shares are worth 11*549.6p = £60.456, the 11 ex-rights shares are worth 11*506.83p = £55.751, and the 3 rights are worth 3*156.83p = £4.705, so about £4.705/ £60.456 = 7.8% of the original holding value goes into the rights and the remaining ~92.2% into the ex-rights shareholding. That ~92.2% figure is also the 'bonus' element adjustment to dividends for the rights issue - essentially, the company is saying that the ex-rights share is only ~92.2% of a cum-rights share, so you can only expect ~92.2% of the previous dividend for it. It's up to you as the shareholder to decide how you want to get income from the ~7.8% of the cum-rights shares that have gone into the rights - though obviously they'd like you to do so by using the rights as part payment for the new shares and receiving the dividends they pay!

On that basis, the final dividend of 9.8p has effectively been held, at 92.45% of the previous year's 10.6p (***). The total dividend for the year is still effectively up a bit (around 2%) because the interim was up about 6.5%. Nothing to worry about there, I think: companies that increase dividends and have a rights issue about the same time tend to attract "why are they giving with one hand and taking with the other?" criticism, while those that cut dividends and have a rights issue about the same time tend to attract "the real reason for the rights issue is that the company is in a bit of trouble" suspicions, so holding a dividend that's announced around the time of a rights issue is probably quite a sensible move.

(*) If your number of shares is not exactly divisible by 11, each odd cum-rights share will become an ex-rights share plus 3/11ths of a right, but you'll only get the number of rights that you're completely entitled to and lose any odd fractions, i.e. your number of rights will be rounded down from 3/11ths of your number of shares. So 1-3 odd shares over a multiple of 11 won't generate any extra rights over those generated by the complete sets of 11 shares, 4-7 will generate an extra right, and 8-10 will generate 2 extra rights.

(**) As long as the market value of an ex-rights share doesn't drop to close to 350p or below it. Basically, if it does drop that far, the fact that one can choose to subscribe to the right or let it lapse according to whether the share price has risen or fallen very close to the subscription deadline gives it some extra "heads I win, tails I break even" value.

(***) Yes, 92.2% is slightly less than 92.45%. But the ~92.2% figure will vary a bit depending on what cum-rights price one bases the calculations on - e.g. starting at the share price of 531p that I got when I looked just now, the theoretical ex-rights price is 492.2p and the ~92.2% figure becomes ~92.7% instead. I.e. all these calculations are approximate because of share price fluctuations: they should be treated as giving you good ballpark figures, not precise ones!

Gengulphus

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Re: SMDS Finals

#146859

Postby miner1000 » June 20th, 2018, 11:18 am

SMDS??

PinkDalek
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Re: D S Smith plc SMDS Finals

#146864

Postby PinkDalek » June 20th, 2018, 11:32 am

miner1000 wrote:SMDS??


As above and in the rns.

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Re: DS Smith (SMDS) Finals

#146915

Postby Raptor » June 20th, 2018, 2:03 pm

Moderator Message:
Have edited the thread title. Raptor.


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