Barclays starts DS Smith at 'overweight'

Barclays initiated coverage of corrugated packaging manufacturer DS Smith at ‘overweight’ with a 465p price target.

The bank said its investment case is based on expectations that DS Smith will continue to gain market share in a very fragmented market. It also pointed to the company’s substantial exposure to the fast-moving consumer goods sector, saying this makes its returns more stable than those of its competitors.

“Since the arrival of Miles Roberts as its CEO, DS Smith has continued to increase its share of sales in this segment, which has allowed the company to generate more stable cash flows compared with its competitors that are more exposed to the industrials sector.”

Barclays said increasing dividends are attractive in a very low rate environment and the recent depreciation of the pound should boost company earnings before interest, taxes, depreciation and amortisation.

The bank noted that as interest rates have remained low for the past six years, the company’s dividends have grown at a 26% compound annual growth rate.

It expects to see a 12% three-year CAGR with the dividend yield set to reach around 4.6% by full-year 2019.