2 top growth stocks for shrewd investors

Bilaal Mohamed reckons these two packaging firms can continue to deliver significant shareholder returns.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shareholders of FTSE 100 paper-based packaging group Smurfit Kappa (LSE: SKG) woke up this morning to the disappointing news that although revenue had increased during the first half of the year, profits had taken a dramatic tumble. Could it be time to sell up?

Cost inflation

The Dublin-based packaging giant delivered a 5% rise in group revenue to €4.23bn for the six months to 30 June, but pre-tax profits came in at a very disappointing €245m, 21% lower than the €312m reported for first half of 2016. Management blamed continued and unprecedented recovered fibre cost inflation amounting to around €75m year-on-year .

The company is now in the process of recovering these input costs as it moves through the rest of 2017 and into 2018. During the first half of the year, global containerboard supply has been very tight, and remains so. The resulting price increases have led to the company increasing its own corrugated prices in Europe and the Americas in Q2, and these increases will be progressively implemented throughout the remainder of the year and into the first quarter of 2018.

Short-term challenges

Unfortunately, the issue doesn’t end there. Continued shortage of supply and unabated input cost pressures in both regions have led to further containerboard price increase announcements for implementation during Q3. This in turn will require a further round of corrugated price increases by Smurfit in the fourth quarter and beyond.

These short-term challenges will undoubtedly have an impact on full-year earnings for 2017, but I’m satisfied that management is taking the necessary steps to recover the higher input costs, and will continue to grow earnings over the longer term. I still see Smurfit Kappa as an excellent long-term growth pick, trading on a very undemanding earnings multiple of 12.8 for 2017.

Share buyback

Meanwhile, Smurfit’s smaller rival RPC Group (LSE: RPC) gave its shareholders reason to be a little more cheerful recently as it reported first-quarter sales and profits ahead of last year, together with the announcement that it intends to begin a £100m share buyback programme.

The Rushden-based plastic packaging specialist generated £960m in revenues for the three months to the end of June, well ahead of the corresponding period last year, and helped along by the contribution from new acquisitions, organic growth, and favourable currency movements.

Vision 2020

The implementation of management’s Vision 2020 growth strategy also seems to be progressing well, with continued organic growth, good profitability levels and robust cash generation. Shares in the FTSE 250 group have performed exceptionally well over the years, finally punching through the £10 per share threshold for the first time at the start of the new year.

But I believe a sharp pull-back since January has presented an excellent buying opportunity for growth-focused investors who can now pick up the shares for less than 900p, equating to a very reasonable 13 times forward earnings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended RPC Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Down 70%+ since 2020, is IAG’s share price an unmissable bargain?

IAG’s share price is still down around 73% from its pre-Covid level, but with the business performing well last year,…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£17,000 of shares in the FTSE 100 dividend giant can make me £18,874 every year in passive income!

This FTSE 100 dividend superstar has an 8.8% yield with dividends projected to rise. It looks very undervalued to me…

Read more »

Investing Articles

2 top UK growth stocks I’m buying for my Stocks and Shares ISA in July

Looking for UK-listed growth firms to add to a Stocks and Shares ISA? Our writer highlights two he's planning to…

Read more »

artificial intelligence investing algorithms
Investing Articles

This overvalued growth stock makes Nvidia look cheap!

ARM Holdings is a growth stock that’s benefitted from the AI rally. Muhammad Cheema takes a look at whether this…

Read more »

Investing Articles

1 penny stock I’d buy today while it’s 63p

This penny stock's down 70% since last March, yet could be set for a big comeback as the firm rebuilds…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »