Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

DS Smith - trading in line with expectations

DS Smith has said resilient pricing and cost control measures mean trading is in line with expectations.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

DS Smith has said resilient pricing and cost control measures mean trading is in line with expectations. Volumes remain below the prior year, but like-for-like performance has improved.

CEO Miles Roberts said the new financial year has started "well" but acknowledged the economic environment "remains challenging".

The shares were broadly flat in early trading.

Full-Year Results 22 June 2023

DS Smith reported full-year revenue of £8.2bn, up 11% when ignoring the effects of exchange rates. Higher prices were the key driver of growth, partially offset by a 5.8% decline in volumes as market demand was worse than expected.

Underlying operating profit rose 35% to £861m, driven by the benefit of higher prices which was slightly offset by higher costs and lower volumes.

Free cash flow fell 32% to £354m, impacted by higher capital expenditure. Net debt rose from £1.5bn to £1.6bn on higher capital expenditure, but higher cash profits meant the ratio of net debt to EBITDA improved from 1.6 to 1.3 times.

Trading in the new year is in line with management's expectations, despite box volumes remaining lower than normal.

The Board has proposed a final dividend of 12p, taking the total for the year to 18p - a 20% increase.

Our view

Selling cardboard boxes might not be the most exciting business model in the world, but DS Smith's resilience in tough conditions has continued to hold it in good stead. There wasn't much to go off from the first short trading update of the year, but everything looks to be progressing as planned.

The group's a key supplier to e-commerce groups, providing the cardboard boxes that are a familiar sight outside houses up and down the country. DS Smith also sells its boxes to consumer goods and food groups. These include many of the 'shelf-ready' cardboard boxes you'll find in the supermarkets. Demand for these segments is benefitting from structural growth drivers - consumers are keen to shift away from plastic packaging, and reliance on e-commerce is a trend that's here to stay.

Input costs are on the rise, and to cope, DS Smith is increasing its own packaging price while deploying contracts to protect against unfavourable gas prices. It's working, and price hikes have been feeding through to the bottom line.

Volumes have also been a challenge and remain on our radar, but we're cautiously optimistic that trends will improve over the year. There are early signs that customers, think Amazon, are back in the market after reducing packaging levels last year to cope with lower levels of end-consumer demand. We should also start to see easier comparable periods acting as a tailwind as we move through the year.

Looking at the balance sheet, the group's very well capitalised. There's probably scope for a buyback or bolt-on acquisitions, but the focus is organic growth and efficiency improvements - which makes sense. The forward prospective yield sits at an attractive 5.8%, which looks well covered for now.

DS Smith is in a strong position with exposure to attractive end markets. The valuation currently sits a good way below the longer-term average, which we feel offers potential upside. But remember, this also reflects ongoing economic uncertainty and there are no guarantees.

DS Smith key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 5th September 2023