marktime1231
19 Jan 2020
Thoughts on DS Smith? Eadwig: there are currently no reportable short positions open on SMDS I see three shorters with 2.90% against SMDS not including unreported small positions. Eadwig: Amazon … don’t know where they get it from. I suspect they multi source raw cardboard or pre-forms. 1-2 million a day worldwide, not bothered by the ethics but I don’t buy the idea that they don’t cut down trees. When you think about it cardboard is a huge element of their business, a secure supply is something I suspect they devote huge energy to. I hadn’t thought about RMG, but they don’t fulfil orders like Amazon do they. I wonder who consumes even more cardboard than Amazon … McDonalds, KFC, Ikea?
Eadwig
18 Jan 2020
Thoughts on DS Smith? john.a.reeves: Not sure how much the sale will produce. They got £400m as reported in the H1 trading statement. I assume the plant was still perfectly viable for those who aren’t bothered about their ESG profile. I see another $7Tn in funds is moving under the ESG mantle which takes more than 50% of global assets under management operating by these ‘guidelines’ I think SMDS made a wise move. I tried to buy on Friday @358p (plus duty) but my order just missed the market close. marktime1231: Waiting for a dip under 350p then, ahead of an update in early March … or sooner, the shorters might be seen off depending on what SKG and MNDI have to say. As a result there are currently no reportable short positions open on SMDS at Friday’s close. [link] This is an interesting comment because some funds have shorted several companies based on their Over-positive ESG profile not being fully realised as yet, and others, including SMDS they have avoided as already having TOO MUCH negativity priced in. Last I saw it was one of the top 3 in the FTSE 100 to be avoided by shorters because of too much weight already placed on this aspect of the business. SMDS currently has a Yahoo Finance ESG score of 15,5 which is VERY low. E.g RDSB 35.8, BP 34.9, RIO 29.9, GLEN 44.4, TSCO 63.6, IAG 29.3, BARC 31.7, BDEV 10.4, PSN 14M It should be noted that there is no standard way for scoring these values with most funds using their own methodology, which i imagine shall increasingly become an issue in future. marktime1231: I wonder what Amazon intends to do Amazon have been using 100% recycled cardboard packaging for at least 20 years to the best of my knowledge. I don’t know where they get it from. RMG still wrap their parcels in plastic bags.
marktime1231
17 Jan 2020
Thoughts on DS Smith? Thanks for all your comments. Waiting for a dip under 350p then, ahead of an update in early March … or sooner, the shorters might be seen off depending on what SKG and MNDI have to say. Structurally paper/card packaging has to be on the up over the next decade, as we turn our back on plastic and online ordering grows. I wonder what Amazon intends to do … acquire and integrate its own packager, or use its scale and market dominance to bully a good deal from suppliers.
sharegardener
17 Jan 2020
Thoughts on DS Smith? Hi MK, I have been holding some SMDS for several years and they have paid a rising dividend over many years (in 2017 the 7yr divi CAGR was 25% - see 2017 finals presentation slide 14) but divi growth has slackened off slightly recently (21% div cagr 2019 finals slide 16) . Financial year end is 30th April. Plastics division was sold for $585M with completion due around now. (The H1 results transcript has the CFO correcting the CEO that completion expected end of Calendar 2019 not Fiscal 19). Link below seems to work - I dont have a subscription! investorschronicle.co.uk – 6 Mar 19 DS Smith sells plastics division The packaging specialist will reduce its debt pile with the disposal, reassuring investors in the process There is usually a Q3 trading update in early march but sale completion should be announced sooner. I too have noticed that there are shorters with rising positions so they must know something we dont! [link] Perhaps a combination of plastics division sale delay, paper/cardboard pricing with european market slowdown and maybe USA paper plant contribution. Some shorts in Mondi but nothing listed for SKG. Also, after a large acquisition there are always concerns that value is not created and the company has overpaid. IMHO SMDS have a good track record of integrating acquisitions and achieving the expected synergies. I will wait to see what happens but would be tempted to buy more if there is a pull back towards 300p. PS I’d almost given up on the ii discussion boards and havent contributed anything for a while but I may well revive my interest. SG
john.a.reeves
17 Jan 2020
Thoughts on DS Smith? Eadwig: but felt obliged to take 8% profit 10 days later @390p. Eadwig - hi I’m watching for another good entry point. That loan at such a low rate was a masterstroke, as was selling off plastic wrapping equipment while they could still get good value for soon tyo be obsolete equipment. Given the recent graph of SMDS your ‘in - out’ tactic is perfect. Not sure how much the sale will produce. If you, and presumably the world and his wife, know the equipment is soon to be obsolete, it sounds as if the buyer has the upper hand in what is really a ‘fire sale’ by SMDS. JAR
john.a.reeves
17 Jan 2020
Thoughts on DS Smith? marktime - hi marktime1231: In that context it seems a shame to worry too much about the debt, Debt is never a problem … until you have to repay it! More realistically, leverage can be beneficial - too much debt is a problem. Agree SMDS has good points and could well be worth an investment at some time and at some entry point. For me not yet! Good luck m8 JAR DYOR
Eadwig
17 Jan 2020
Thoughts on DS Smith? marktime1231: Personally I think SMDS is the pick of the bunch, the entry price is all important though because the sp is volatile 310-390p. I started to build a position recently when the price fell to @360p after what i thought were quarterly results, but felt obliged to take 8% profit 10 days later @390p. I’m watching for another good entry point. That loan at such a low rate was a masterstroke, as was selling off plastic wrapping equipment while they could still get good value for soon tyo be obsolete equipment.
marktime1231
16 Jan 2020
Thoughts on DS Smith? Thanks John. I have been reviewing SMDS in the context of its main packaging rivals Mondi MNDI, Smurfit Kappa SKG and Mayr Melnhof MMK (listed in Austria) which seem to be the other sector leaders in Europe. Alongside distribution and payment services the packaging sector seems one destined to benefit from the ongoing momentum towards online ordering. These four companies have achieved scale and are fighting it out for sector dominance. MNDI perhaps slower to shift away from plastic and closing factories, and has just lost its CEO to MMK or was he pushed, there is a story as yet untold here. Of these big four SMDS pays the best dividend. The sp hiatus in 2018 was due to a £1B rights issue and £500M borrowing in order to buy Europac. The plan to sell off its plastics division to Olympus Partners announced last March would have yielded £400M+ net proceeds which should have improved the debt position already, for some reason I can’t find an rns to confirm completion of the transaction expected by the end 2019. Curiously Europac seems still to be involved plastic packaging but SMDS have been positive about its integration and synergies (cost savings). The latest update from SMDS in early December was pretty good, confident about volume growth and record profits in H1 but hints at competitive price pressures in the US, and some analysts think the momentum from online ordering has eased … the dividend keeps advancing though. In that context it seems a shame to worry too much about the debt, in September SMDS was able to issue a 7-year E600M note at just 0.875%. which is trifling when the business is operating at gross margins of 11%. Except that it does not disguise the net debt is high, at over 2 x gross earnings, and a few shorters have been increasing their bets against perhaps speculating if the sale of Plastics has hit a snag. An update in the run in to financial year end (reset to 30 April ?) might be coming in early March, not sure the financial calendar is confusing. Personally I think SMDS is the pick of the bunch, the entry price is all important though because the sp is volatile 310-390p. SKG reports 5 Feb, MNDI 27 Feb which will provide a sector backdrop.
john.a.reeves
16 Jan 2020
Thoughts on DS Smith? marktime - hi marktime1231: Views on this please, watching as one to add to the income portfolio for its dividend growth prospects. I too am interested in income shares so your question interested me to look at SMDS. I use a company called Stockopedia (costs me £200 per year for UK stocks - more for Europe and USA which I don’t use). I find it excellent and well worth the money if used wisely! Worth checking out as it lists companies under many different investment strategies - including dividends as well as very detailed data on each company which I used for SMDS. I don’t get any commission by the way! My conclusion is that I personally would keep them on hold and not invest yet but DYOR. Comes out OK on value as the revenue, operating profit net profit and EPS have consistently been increasing - though the GROWTH in EPS has recently reduced. The problem, as you say is it’s debt! Gross gearing (debt to equity) is 97.4% (including the pension deficit) Net gearing (debt minus cash) is 83.4% (including pension deficit) There is a measure (Altman z score) that measures financial risk and SMDS scores 1.4 where anything below 1.8 indicates a risk of financial distress / bankruptcy within 2 years! This is one reason why SMDS is on a list of companies to ‘short’ sell. Although it still is on another list for value shares. This is particularly relevant if the economy is hit with a downturn. It does have 5 major investors (each holding over £50 million) - the largest two Aviva at £96m and Aberdeen Standard at £84m. If you look at the graph over 1 year it is a series of highs and lows showing obvious volatility. Was 394 in December and 308 in August now heading down again. As an aside, I’m holding 50% cash now in anticipation of a general market decline (the major stock markets have had a good run but my view (borne out by history), is that it cannot last - and no, I cannot predict the date! As you say, a sale could improve the debt position so would keep a ‘watching brief’ on this share - as I will now do! Hope this helps and best of luck JAR
marktime1231
15 Jan 2020
Thoughts on DS Smith? DSSmiths SMDS the cardboard box maker looks fair value at 360p, off from 380p despite pi buyers, a reasonable progressive dividend, and is one of those companies riding on the momentum of online ordering. So it ticks the boxes ( tee hee ).n What are the negatives? It has heavy debt and weak net assets, although that might be improved by the sale of its plastics division. Share price plunged hard in 2018, because … er? Views on this please, watching as one to add to the income portfolio for its dividend growth prospects.
Eadwig
11 Dec 2019
Opened A Position I’ve recently opened a position in SMDS @360.xp after all costs despite having done very little research on the company, which I will now commence before seriously building a position. My buy was based on: Estimated forward yield of at least 4.5% on my holding price. Record profitability reported in H1 statement 5th Dec 2019, despite poor retail environment. Volatility shown over the last year’s chart with a general upward trend which is precisely what I look for when building a position. Growth demand in packaging from recycled paper and for e-commerce. International earnings Caveats Only ranked in the 90s in the FTSE 100. Dropping out of that index at any point in the future will have a significant negative impact on the share price. Plastic packaging increasingly environmentally unacceptable. Regulations or the trend may bring changes faster than SMDS can cope with. Potentially SMDS has capital investments in plastics packaging that could end up obsolete, although I understand they are trying to divest themselves of at least part of these assets. Mention of " strategy to reduce US long paper exposure" - I don’t yet know what this is. Packaging is famously cyclical and we may be on the verge of a global downturn. The first part of my research is to look at SMDS’s ESG ranking, something which is becoming increasingly important when it comes to funding and institutional investors and as part of their future strategy is about adjusting to environmental concerns. SMDS are slightly above average when measured against their sector peers and have a reasonably good score overall measured against FTSE 100 companies. From yahoo finance ESG’s rankings: image.png1114x908 84.8 KB
pelim
13 Jun 2019
In for the 2nd time in 3 years I followed DT Questor at 343 so more modest gain for me. Still, John Lewis sent me a parcel recently wrapped in enough cardboard to sink a battleship! So SDMS should be good for a while yet.
Gamesinvestor1
13 Jun 2019
In for the 2nd time in 3 years Stayed in and added more, especially after the decision to sell and the price they got for the plastics business - added at 299, 314 and 330 – so far so good + a couple of good dividends. It’s 1.47% of my wad, and happy to hold as more and more people keep getting carboard boxes stuffed through their porches while the shops are getting fewer and fewer visitors. Games
pelim
13 Jun 2019
In for the 2nd time in 3 years Reasonable set of results today. Acceptable forecast, and a welcome 13% on the dividend. Could be a good long term hold? Did you hold or take a good profit @ 372 in May?
mfletcher
25 Mar 2019
Promotion Lots of promotion on Fool, but I note that debt is mounting. This is whats killing it for me. If they start a debt reduction program then that would be preferable.
