Smurfit Kappa is Europe’s leading corrugated packaging company and one of the leading paper-based packaging firms on the planet. Packaging in all forms has been a staple for all industries for many years but in recent times there has been an e-commerce boom and the pandemic has exacerbated this too. Due to this, demand has increased. Firms like Smurfit are primed to benefit.
As I write, shares in Smurfit are trading for 4,025p whereas a year ago shares were trading for 3,374p. This represents a 19% return over a 12-month period. It is worth noting that shares have comfortably surpassed pre-pandemic levels too.
Why I like Smurfit Kappa
Smurfit’s profile, offering, and reach are excellent. It is a world leader in its market and has a vast reach. It has 36 factories producing its packaging materials in countries across the world. In fact, it recently announced a new plant in Mexico. The Latin market could be key for it to continue growing, which could lead to increased performance and better returns. At current levels it looks attractively priced too. It sports a price-to-earnings ratio of 19. The FTSE 100 average is 20.
Next, Smurfit has a good track record of performance too. I understand the past is not a guarantee of the future however I like to use it as a gauge nevertheless. I can see revenue and gross profit increased year on year for three years prior to 2020, when levels dropped slightly due to the pandemic. Coming up to date, a trading statement in November for the first nine months of the year made for good reading too. Revenue increased by 15% compared to the same period last year. Overall, forecast full-year results are on target to be met.
Finally, the rise in environmental, social, and corporate governance (ESG) investing has shone a light on firms like Smurfit. It looks to adopt ESG practices and keep its business socially and environmentally friendly. This is a bonus for me personally as ESG investing is not high on my list of priorities. However, it is good to see Smurfit adopting practices in its operations such as recycling old materials and being environmentally friendly.
FTSE 100 stocks have risks too
Smurfit could experience performance issues due to the current macroeconomic pressures. Rising inflation and costs could hurt performance and any investor returns too. Costs passed on to customers could lead towards its customer turning to competitors, although they face similar headwinds too. Furthermore, the packaging market is competitive. Other FTSE 100 players include DS Smith and Mondi.
Despite the risks noted, I like Smurfit Kappa and would add the shares to my holdings at current levels. I believe it is currently attractively priced and performance seems to be on the up. Furthermore, it pays a dividend, which would make me a passive income.