FTSE 100 company Smurfit Kappa Group (LSE:SKG) is a key player in the paper and packaging market, which is seeing a boom thanks to increased e-commerce demand during the lockdown. I think it is a stock with growth potential and could be a sensible place to invest £1,000 via your Stocks and Shares ISA.
The environment and safeguarding of the planet remain at the forefront of many business plans. This means companies are seeking more sustainable solutions for packing their products. Specialist packaging is necessary not only for online sales but also for the pharmaceuticals sector, food and beverages and industry in general.
Distribution of vaccines, antibody tests and vitamin shots around the globe, is increasing demand for specialist packaging solutions. Likewise, food and drink, chemicals, batteries and dangerous substances also need to be packaged with care.
This all makes packaging a vital piece in the globalisation puzzle, but it also has a great responsibility to be a leader in sustainability.
Financial outlook
Smurfit Kappa was founded in Ireland in 1934. It has a £6bn market cap, a price-to-earnings ratio (P/E) of 14, and earnings per share are £1.79. Full-year results for 2019 showed earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 7% to €1.65bn and revenue was up over 1% to €9.05bn. Growth in volume also boosted the FTSE 100 group’s performance.
It opted to withhold its scheduled dividend payment as the coronavirus pandemic spread in April. This was a disappointing move for shareholders who had previously enjoyed a dividend rise of 12% after an uptick in core earnings and revenue for 2019.
The Smurfit Kappa share price is up 29% since the March stock market crash, but I think it still has further to climb. Its directors have been buying a significant number of shares in the company, showing confidence in their ability to steer it to further success. It has plenty of liquidity to keep it afloat in times of trouble, with access to over €1.5bn. Its debt maturities have a five-year time frame and bonds mature in four years.
A stock with growth potential
Some packaging solutions Smurfit Kappa is creating include Bag-In-Tube Packagings. These are the sort of things you see on supermarket shelves, such as squeeze tubes, twist tubes and collapsible or cartridge tubes. It uses them for high-end liquids and semi-liquids such as wine, fruit juices, spirits, maple syrup or olive oil. These are used by sectors such as Cosmetics & Oral Care, Food & Beverages, Pharmaceuticals and Cleaning Products.
The sustainable packaging market is tipped to witness enormous growth in the coming years. A rise in non-biodegradable plastic waste is making the drive to adopt sustainable packaging methods more urgent. And globally, governments and local authorities backing and pushing for the production of biodegradable packaging is boosting this.
Despite it being a market expected to experience substantial growth, competition is high and constant product innovation is necessary. However, Smurfit Kappa has an edge as it is already a market leader in this area.
I feel optimistic about Smurfit Kappa’s growth prospects and ability to innovate. That’s why I think it is a stock with growth potential. I feel this FTSE 100 innovator would make a great addition to a Stocks and Shares ISA.
