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Tony, grandson to Jefferson, who started the enterprise by acquiring a small box-maker in Rathmines in south Dublin in 1938, rode on the crest of a wave as the already secular growth areas of ecommerce and sustainable packaging were turbocharged during the pandemic. Smurfit Kappa saw the box sales volumes slump 6 per cent in the fourth quarter, with Germany, the Benelux countries and the UK standing out as particularly weak areas. This triggered further skittishness among investors, following a 40 per cent stock rally from its lows over the past four months.Listen |Still, for an industry in Europe that has notoriously been unable to stop pumping out cardboard that nobody wants at the wrong point of the cycle, it showed remarkable discipline last year.
Smurfit Kappa has managed to extend the lag between falling paper and containerboard prices resulting in declining box prices. This is partly due to the company being more tied in these days with big customers these in terms of designing packaging that works best for them. It’s also down to the company’s vertically integrated model allowing it to meet customers’ demands when supply chains globally were thrown into disarray during the pandemic.
Goodbody’s O’Brien agrees. “Given the successful capital deployment track record of management, which has seen returns [on capital employed] hit a record 22 per cent, in our view this is a stock that should trade much closer to 10 times enterprise value-to-Ebitda.” It is currently trading at less than seven times.