The past year has been a forgettable one for many FTSE 100 stocks. But not all. Some have actually fared quite well. For instance, online shopping boomed as we were housebound. And not just e-marketplaces, but related industries also felt the positive effects from this trend.
One such has been the packaging industry. As a result, FTSE 100 growth stocks like Smurfit Kappa (LSE: SKG) and DS Smith (LSE: SDMS) look to me attractive now.
Smurfit Kappa share price rises on positive update
Smurfit Kappa, the multinational supplier of paper-based packaging reported a 6% rise in underlying revenue in the first quarter of 2021 and corrugated volume growth at 7% today.
This added to the company’s positive outlook. Talking about the quarter, CEO Tony Smurfit said: “The first quarter was remarkable in many ways. We had strong corrugated volume growth in practically every area and all markets in which we operate.”
He further added: “Our strong first-quarter performance has set the foundation for accelerated revenue and earnings growth as we move through 2021.”
The company’s share price is up over 4% on Friday after this trading statement. It adds to the stock’s buoyancy, which was recently at all-time highs. And with a price-to-earnings (P/E) ratio at 19 times, it is still a far cheaper stock than many in the FTSE 100.
DS Smith stays optimistic despite uncertainty
A similar story is visible for DS Smith, which has a P/E of 13 times, even with a sharp share price increase since last year. At present, it is trading at the highest levels seen since 2018.
In its latest update, it too reported expectations of 7% corrugated volume growth for the second half of its financial year (ending April 30 2021). It is particularly positive about growth in the US market. DS Smith also expects strong cash flow and to continue reducing debt.
The company sold its plastics division last year, and is focused on sustainable packaging, which it says has received positive customer feedback.
This update is encouraging, particularly because the first half of the year saw a drop in both revenue and profits for the company. It attributed the weak performance to a setback in Q1 of its financial year due to Covid-19. It had already reported better trends for Q2 and they continued in the second half of the year.
Risks to note
Despite the positive outlook however, rising input prices can spoil the party for both Smurfit Kappa and DS Smith. The two companies mentioned rising paper prices in their respective updates, which is in line with expectations of rising inflation across multiple sectors.
DS Smith has mentioned passing on higher costs in its prices. But depending on the price sensitivity to its products, it risks losing some revenue.
There have also been supply disruptions in the sector because of coronavirus-related restrictions.
Takeaway for the FTSE 100 shares
On the whole though, I think these companies have managed the challenge well so far. With an additional £1,000 to invest, I would buy both FTSE 100 growth stocks.
