DS Smith (LSE: SMDS) is a FTSE 100 share that I have long had my eye on, and I finally grabbed a slice of the action a couple of weeks back.
Admittedly, my timing could have been better. Since then, the box-builder’s share price has fallen 9%, and total losses since the start of October currently stand at an eye-popping 20%.
I’m not too concerned, however. Sure, worries over ample supply in the containerboard market may have added to existing jitters surrounding the world’s equity markets that has driven DS Smith’s market value to the downside. However, I remain convinced that, over the long term, investors in the business should enjoy some pretty stunning returns.
What a bargain!
I’ve tipped the packaging play in the past because of expectations of a large and lasting gap between containerboard supply and demand. But a China-sized spanner was thrown into the works in mid-October when Hong Kong-based Nine Dragons Paper announced that it was ploughing $300m over the next two years to boost capacity at its Wisconsin and Maine facilities in the US.
This has added to fears of oversupply kicking in from the start of the next decade. That news adds to existing jitters concerning planned capacity extensions from the sector’s major players, including the likes of Footsie businesses Smurfit Kappa and Mondi.
For my money, though, the future supply worries created by this news is now more than baked into DS Smith’s share price, given that the company now trades on a forward P/E ratio of just 9.9 times.
Growth + dividends
Rather, I believe this low rating should provide plenty of upside in the years ahead, particularly given the box-maker’s drive into the growth markets of Eastern Europe and North America. That’s being engineering through a combination of shrewd acquisition activity and organic expansion.
Indeed, DS Smith has plans to open two new facilities in Europe, and two in the US as well, following on from its entry into the lucrative marketplace in 2017 when it purchased Virginia-based Interstate Resources.
As chief executive Miles Roberts commented last month: “The corrugated packaging industry continues to demonstrate excellent growth prospects, driven by changing shopping habits, e-commerce, and the ever-increasing relevance of sustainability.”
And City analysts concur with him and are expecting earnings at DS Smith to improve to 16% in this fiscal year, the 12 months ending April 2019, and an extra 8% in the 2020 period too.
City analysts are also forecasting bulky dividends through this period as well. For fiscal 2019 and 2020, payouts of 16.9p and 17.9p per share, respectively, are predicted, projections that yield a mighty 4.4% and 4.7%, respectively.
So to answer the question at the top of the piece, DS Smith can well be considered one of the best FTSE 100 bargains right now, in my opinion. But we here at The Motley Fool believe that it’s not the only blue-chip dividend hero trading much, much too cheaply today.
