FTSE 100 packaging company DS Smith (LON:SMDS) saw its share price dip during Thursday. despite booking robust full-year results.
Group revenue dipped by 2% year-on-year to £6.04 billion. In spite of that fact, the company were able to book a 5% jump in operating profit to £660 million, while profit before tax also rose 5% to £368 million.
Similarly, its return on sales increased 70bps to 10.9%, while its return on average capital employed dipped by 300bps to 10.6%.
The situation for DS Smith investors was equally mixed. Its basic EPS jumped 8% to 21.2p per share. However, notably, the group decided in early April that it would cancel the interim dividend payment due to be paid at the start of May.
The outlook for dividend payments looked equally bleak, with the company’s statement reading:
“The Board has since considered the overall dividend payment for this financial year and, taking into consideration the interests of all stakeholders, concluded that the outlook remains too uncertain to commit to a resumption of dividend payments in the short term. Recognising the importance of dividends to all shareholders, the Board will actively consider the resumption of dividend payment, when we have greater clarity over outlook.”
This decision came despite what the company described as ‘robust’ trading and strong liquidity. DS Smith boasted strong performance in Europe and only limited COVID-19 impact in March and April, though its US domestic performance was hampered by “continued weak export paper pricing”.
The company said that it had successfully integrated Europac into its business and disposed of its plastics division. It added that despite economic uncertainty, its outlook remained strong.
DS Smith response
After applauding the company’s 30,000 employees and lauding the resilience of its trading, group CHief Executive Miles Roberts stated:
“Our business model is resilient, built on our consistent FMCG and e-commerce customer base. In the short term, however, the impact of Covid-19 on the economies in which we operate is likely to impact volumes to industrial customers and add to operating costs. In particular, infrastructure constraints have driven elevated OCC prices, although we currently expect the impact to be limited to H1. With the current economic uncertainty, we continue to focus on our employees, our customers, our communities and on the efficiency and cash generation of our business and accordingly the Board considers it premature to resume dividend payments at this stage.”
“In the medium-term, the growth drivers of e-commerce and sustainability are as strong as ever. The Covid-19 crisis is also expected to accelerate a number of the structural drivers for corrugated packaging and our scale and innovation led customer offering positions us well and gives us confidence for the future.”
Investor insights
Despite a controlled set of results, the cancellation of its dividend saw DS Smith shares dip 9.26% or 29.50p, to 289.20p per share 12:55 BST 02/07/20. This is down by approximately 21% year-on-year, and well below its median target price of 342.50p per share. The group’s p/e ratio stands at 9.57.
Cancellation of the dividend and any freakish occurrences aside, the company naturally has a positive outlook. With a seemingly exponential trajectory for the growth of e-commerce, packaging and deliveries companies have a bright future.
