Davy Stockbrokers has upgraded its full-year earnings expectations for paper and packaging giant Smurfit Kappa, on the back of a strong first half performance as well as good fundamentals in the sector.
On Friday, the broker said it now expects Smurfit Kappa’s earnings (EBITDA) to advance by 5 per cent for 2018, noting that while the group’s profit forecasts are now 15 per cent higher than at the start of the year, “we think the risk remains to the upside”.
Davy is now forecasting earnings growth for Smurfit Kappa of € 1,534 million for 2018, and has also raised its forecast for 2019, up by 6 per cent to €1.629m. the broker has also increased its earnings per share (EPS) forecast, up by 13 per cent for 2018 to 303 cent, and up by 10 per cent for 2019 to 310 cent.
In the group’s European division, the broker said that the main driver of the forecast increase is the better box price environment, while it has increased its forecast for the Americas operations “ to reflect the improvement in earnings momentum in the region”, due to the on-going recovery of higher input costs.
Davy said its expects Smurfit Kappa to generate almost € 450 million in free cash flow this year (pre-acquisitions and dividends), which will result in “rapid deleveraging” of the group’s balance sheet.
The broker reiterated its “outperform” rating.
