DS Smith overdelivers on profits, sounds bullish note on outlook

DS Smith posted better-than-expected full-year profits despite falling short of some analysts' estimates for topline growth, while sounding a bullish note on the outlook for "certain export-led markets" and revising higher some of its medium-term financial targets.

"DS Smith is increasingly well-placed to capitalise on rising consumer demand for sustainable corrugated packaging as well as greater convenience from both e-commerce and more traditional retail channels," said company boss Miles Roberts.

For the 12-month stretch ending on 30 April, the company a 12% jump in topline growth on a constant currency basis to reach £6,171m (Numis: £6,243m), for adjusted profits before tax of £569m (Numis: £556m), which were up by 31% on a year ago, and adjusted earnings per share of 33.0p.

Critically, the packaging manufacturer said it expected the volume weakness observed in "certain export-led markets" over the back half of the past financial year "to improve during the current year".

"While volatility in the macro-economic environment and input costs remains, our focus on pricing discipline, operating efficiencies and cash flows supports our expectations of further good progress in the coming year," the company said.

Free cash flow during the period improved by 84%.

Management also revised higher their medium-term target for the company's return on sales to between 10.0-12.0% and bumped up their estimate for the anticipated synergies "following successful initial progress in integrating Europac".

At 2.3 earnings before interest, taxes, depreciation and amortisation, net debt was lower than the 2.7 times EBITDA that analysts Numis had penciled-in.

And management said that they had agreed the sale of its Plastics unit, so that on a proforma basis, or taking into account that sale, net debt/EBITDA dropped below 2.0.

The company also bumped up its full-year dividend payout by 13% to 16.2p.

Commenting on the results, analysts at Peel Hunt said they were "very much as expected".

"There has been some weakness in certain export led markets including Germany and there is recognition of some volatility in input costs but progress is expected this year. We are bottom end of expectations at 38.0p and don’t expect this to change in a major way."

Peel Hunt's Harry Philips was at a 'buy' on the shares with a target price of 460.0p.