No indigestion for paper tiger Smurfit roars

Jefferson Smurfit, which accounts for 15 per cent of the value of the Dublin market, is on a roll. A series of acquisitions has created arguably the world's biggest packaging group just as selling prices have recovered to pre-recession levels.

Underlying profits soared in the six months to June, with the figure before exceptionals jumping from IRpounds 44.6m to IRpounds 201m, which translated into underlying earnings per share of 12.8p, up from a meagre 3.5p last time.

The figures were the first to reflect a full period's contribution from the paper and packaging operations of Compagnie Saint-Gobain, Cellulose du Pin, acquired for IRpounds 684m last November. The business has transformed Continental European operations, raising turnover there from Irpounds 203m to Irpounds 925m. But a maiden contribution of over Irpounds 60m to European profits, which rose from Irpounds 7.7m to Irpounds 95m, suggests integration is proceeding well. The acquisition contributed around 3.4p to these figures.

The group's European presence has also been reinforced recently by the Irpounds 56.4m acquisition of Papeteries du Limousin in France and Munksjo, a Swedish group picked up for Irpounds 68m in June.

These purchases have come as prices have taken off, with pulp alone up from around $325 a tonne in mid-1993 to $925 now. Strong demand means the group has been able to raise prices ahead of costs, which, with bigger volumes and lower costs, has pushed group margins to 6.5 per cent from around 3 per cent last time and pushed the US operations back into the black.

Profits of somewhat over Irpounds 405m this year would put the shares on a lowly multiple of less than eight, which reflects the market's belief that the paper cycle will turn down towards the end of next year.

Smurfit believes that is unduly pessimistic, suggesting that although prices for corrugated boxes have now probably peaked, there is still further to go in US newsprint and coated paper.

From a 13 per cent return on capital currently, the company believes something nearer 15 per cent is possible across the whole cycle. Such a forecast makes some heroic assumptions about current demand from the Far East holding up. Even so, the market is being unduly cautious, while a share buy-back - involving just short of 2.5 per cent of the share capital - should ease any indigestion in Dublin following last year's rights issue.

Shares reel after Marley bombshell

Yesterday's 8 per cent slide in Marley's share price to 115.5p was a pretty charitable reaction to the bombshell Marley dropped on its shareholders.

The acquisition of US plastic chair maker Syroco in April cost almost pounds 90m, involved a one-for-six rights issue at 112p to finance it, and was expected to be earnings-enhancing next year. It hasn't quite worked out that way.

Less than half a year on, investors are told that Syroco had a terrible second quarter in which it made only $3.2m compared to $9.4m last year. Worse, a second-half loss will lead to break-even at best for the rest of 1995.

That took the shine off interim figures that on the face of it looked pretty good - pre-tax profits up from pounds 18.7m to pounds 24.1m and earnings per share up 21 per cent to 5.1p. Only a flat interim dividend of 2.1p suggested that all was not well.

Hindsight is a wonderful thing, but it is now clear that Syroco is extremely vulnerable to pricing pressures - rising plastic prices have squeezed it at one end while flat retail demand has made life difficult at the other.

It is worryingly dependent on two or three large buyers, including WalMart, who can be expected to demand that any reductions in raw material prices are passed on in full.

The rest of the business is also under pressure and it now appears that Marley's recovery last year was a short-lived affair.

Profits from roof tiles and blocks jumped from pounds 5.7m to pounds 9.6m thanks to higher selling prices offsetting falling demand, but volumes have continued to track the housing market down this year and pricing can only be expected to follow.

After last year's pounds 58m profit, forecasts this year of pounds 48m put the shares on a prospective multiple of 11, falling to 10 on next year's estimates of about pounds 56m. That may not sound steep, but the market takes nasty surprises badly and a 10 per cent discount to the sector may not satisfy it.

A 5.5 per cent yield provides some support but the shares, despite their slide from last year's high of 206p, are still expensive.

Senior engineers profit increase

It has been a roller coaster ride for shareholders in Senior Engineering over the past 18 months, but the Hertfordshire aerospace and automotive engineer looks to be in better shape than it has for some time. Stung by last year's profits warning, the market has treated the company with caution and on a marked discount to the rest of the sector. With a 4.6 per cent yield, the shares look well supported.

Underlying profits before tax, excluding a pounds 7m hit to cover a thermal engineering contract that turned sour, increased from pounds 12.1m to pounds 14.3m in the half-year to June. Earnings per share increased 12 per cent despite a higher number of shares in issue and the interim payout was increased 5 per cent to 1.37p.

Driving the recovery has been good growth in profits and margins from the engineered products division, which is finally benefiting from large amounts of investment. Products such as flexible exhaust connectors for the car industry have been boosted by environmental legislation while the aerospace operations are recovering from recession.

As important is the decision that Senior can do without the lumpy and risky earnings provided by the former core thermal engineering business. With sales of almost pounds 120m and a recovering order book a buyer should be easy enough to find, and reinvesting the proceeds in growing engineering niches will more than make up for the loss of the division's contra-cyclical attractions.

House broker Albert E Sharp nudged up its profit forecasts for this year and next to pounds 30m and pounds 34m, giving earnings per share of 7p and 7.9p respectively. After yesterday's 2p rise to 99p, the shares stand on a prospective p/e of 12.5. Fairly priced.


Turnover pounds Pre-Tax pounds EPS Dividend

Dawsongroup (I) 34.4m(28.1m) 5.4m(5.0m) 11.7p(10.8p) 2p (1.8p)

Friendly Hotels (I) 17.6m(16m) 1.1m(963,000) 2.4p(1.7p) 2.2p(2.2p)

Harrington Kilbride (I) 5.7m(7.8m) -1.8m(-1.4m) -17.9p(-13.7p) - (-)

Jefferson Smurfit (I) Irpounds 1.5bn(Irpounds 773m) Ir200.6m(Ir251.5m) 12.8p(3.5p) 1.4p (0.7p)

Kerry Group (I) Irpounds 580m(Irpounds 419m) Irpounds 16.5m(Irpounds 14.9m) 8.8p(7.9p) 1.1p(1p)

Marley (I) 352.6m(315.9m) 24.1m(25.3m) 5.1p(6.5p) 2.1p(2.1p)

Quarto Group (I) 26.6m(22.6m) 1.5m(1.7m) 3.8p(4.8p) 2p (2p)

Senior Engineering (I) 219.1m(196.5m) 7.3m(12.05m) 1.69p(3.24p) 1.37p(1.3p)

Sunleigh (I) 20.7m(7.9m) 458,000(270,000) 0.06p(0.12p) -(-)

W H Smith (F) 2.7bn(2.4bn) 100.9m(83.4m) 23.9p(19.9p) 10.4p(10.4p)

(Q) - Quarterly (F) - Final (I) - Interim

Start your day with The Independent, sign up for daily news emails
Life and Style
A still from a scene cut from The Interview showing North Korean leader Kim Jong-un's death.
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Bianca Miller and Katie Bulmer-Cooke are scrutinised by Lord Sugar's aide Nick Hewer on The Apprentice final
tvBut Bianca Miller has taken on board his comments over pricing
in picturesWounded and mangy husky puppy rescued from dump
newsAstonishing moment a kangaroo takes down a drone
Life and Style
Duchess of Cambridge standswith officials outside of the former wartime spy centre in Bletchley Park
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'