Smurfit Kappa: Pack-man

Smurfit Kappa: Pack-man

Mondi (MNDI) topped the FTSE on Friday, enticing investors with a bumper special dividend to prove management’s confidence that a troubled second half of 2017 was water under the bridge, boosting its yield to overtake recently shunned bond-proxies hurt by rising Treasuries. Today it’s the turn of Smurfit Kappa (SKG) – Europe’s largest producer of paper-based packaging – after it rejected an unsolicited and ‘highly opportunistic’ cash and share approach from International Paper Company to add spice to a quiet but highly successful sector.

 

The news has understandably sent SKG shares sharply higher, +20% to fresh record highs, and dragged sector peers Mondi and DS Smith (SMDS) north by 4-5%. This is based on hopes of consolidation in the packaging sector, one which may not top investors’ list of the most exciting stocks but which has, nonetheless, offered significant share price gains since the 2009 financial crisis lows (DS Smith shares up 15x, Mondi up 16.7x, SKG up 37.5x), helped by the meteoric rise of internet shopping (and economic recovery) requiring each of the packagers’ wares to ensure the protection of goods during transit, and eclipsing many other blue-chip giants.

 

Said share price rises have seen the sector grow from limited, if any, FTSE representation (just MONDI for many years) to today comprise three stocks with a combined market cap of £22.3bn, up almost 10% versus yesterday and now safely worth at least 1% of the Index by weight. With a coordinated global fight against the use of plastics, the sector could well beripe for consolidation. That said, does the old adage ‘consolidation at the top’ ring true with the shares around record highs and a small number of big players could result in competition concerns. Then again, in terms of protectionism/intervention, note only SMDS from the UK, with MNDI (South Africa) and SKG (Ireland) only listed in London meaning a similar attempt by UK MPs to to block the Melrose/GKN deal would be unlikely.

 

Smurfit Kappa shares +18%. Accendo Markets does not have a rating or target price on any of theSmurfit Kappa

Mondi shares +4.5%. Accendo Markets does not have a rating or target price on any of the Mondi

DS Smith shares +4%. Accendo Markets does not have a rating or target price on any of the DS Smith

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