The Investment column: Paper prices cut Smurfit profits
Wednesday 09 April 1997
So there was little surprise yesterday when Ireland's biggest industrial company announced profits slashed by 52 per cent to Irpounds 201m for 1996. Even so, Smurfit remains determinedly optimistic.
Although Dermot Smurfit, deputy chairman, was warning yesterday that 1997 would be another difficult year, he expects that a tightening of capacity later this year will ensure that 1998 should see the start of a sustained upturn for the industry. Support for this view comes from the recent performance of prices in Europe, which in the last few months have recovered half the pounds 60 a tonne fall recorded since the peak last year. Mr Smurfit also takes comfort from the reported decision by International Paper, the big US producer, to buy capacity rather than build it.
But there lies the crux of the problem for Smurfit. While the group has made a mantra of its renunciation of new-build capacity, others have proved more susceptible to the temptation to rush out and start building at the first sign of higher prices. The company itself points out that the 5.9 billion tons of capacity put on by the industry in the last three years is around double that likely to be used by "normal" demand growth. That adds up to a substantial overhang, even before taking account of the estimated 3.5 per cent or so additional plant expected to come on stream this year.
Even if the rest of the industry were to renounce its fixation with investment, Smurfit also has to contend with the uncertain outlook for continental economies, now the biggest part of the business since the pounds 640m takeover of Cellulose du Pin of France in 1994.
That said, Smurfit remains a quality company in an uncertain sector. This year should see it hack out another pounds 30m in cost savings, while good cash flow, admittedly assisted by favourable currency movements, has cut gearing to 34 per cent.
That strength is likely to be used for bolt-ons in places like Germany and developing markets, rather than mopping up the outstanding 53.5 per cent in Jefferson Smurfit Corporation, despite the apparent eagerness of Morgan Stanley to sell its 36 per cent stake. Profits of Irpounds 135m would put the shares, down 4p at 155.5p, on a forward p/e of 19. High enough, even with non-Irish investors holding one-third of the equity.
- 2 Rarest Beanie Baby of them all could be sold for £62,500 on eBay
- 3 Professional big game hunter Ian Gibson crushed to death by elephant during hunt
- 4 Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
Yemen crisis: Meet the child soldiers who have forsaken books for Kalashnikovs
Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
Rarest Beanie Baby of them all could be sold for £62,500 on eBay
Professional big game hunter Ian Gibson crushed to death by elephant during hunt
Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...