DS Smith gains after posting 20% rise in full-year profit and announcing Spanish acquisition

Shares in recycled packing maker DS Smith rose 2.6% on Thursday after it posted a 20% rise in full-year pre-tax profit and announced an agreement to acquire the corrugated activities of Grupo Lantero, including several operations in which it currently has a minority holding.

Pre-tax profit for the 12 months to 30 April came in at £200m from £167m last year, despite a drop in revenue to £3.82bn from £4.04bn in 2014.

The board recommended a final dividend of 7.7p, which together with the interim dividend of 3.7p gives a total dividend for the year of 11.4p, up from 10p per share last year.

Chief executive Miles Roberts said: "This has been another good year for DS Smith. In a fast-changing retail and consumer environment, packaging is more relevant than ever. The progress in the business with customers is evidenced by accelerating volume growth, together with increased margins and returns, from our unique and enhanced offering.

As far as the acquisition is concerned, DS Smith said the total consideration, including the assumption of debt, is expected to be around €190m, subject to closing adjustments and the transaction is being finance from existing cash resources. It’s expected to deliver a return on invested capital above the company’s cost of capital in the second year of ownership.

The business is a well-invested Iberian corrugated producer with a strong focus in the fast-moving consumer goods sector, operating seven sites across Spain.

“This acquisition significantly strengthens our operations in Spain, an important and growing market for corrugated packaging, taking our market share to approximately 10%,” said the company.

The deal is subject to competition clearance, which DS Smith expects during the third quarter of 2015 with completion shortly thereafter.

“The results are very good but the detail is even better,” said Canaccord Genuity, which rates the stock at ‘buy’. “The attraction of a company with a proven track record of outperforming in relatively low growth but inherently stable markets is substantial in the context of the current macro outlook,” it added.

It said the 11.4p dividend beat its estimate of 11p, while net debt was much lower than it expected at £651m compared to Canaccord’s forecast of £732m.