DS Smith plc (LON:SMDS) (LSE:SMDS.L) has released an AGM trading statement. It says that the business has made solid progress since the start of the financial year. Performance has been in line with its expectations. Its return on sales and ROIC have both improved compared to last year. DS Smith believes that this reflects the benefit of operating leverage and the solidity of its business model.
Its volume growth has progressed. Pan-European customers have benefitted from the increased scale and coverage provided by DS Smith’s investment in innovation. It acquisition programme continues to gather pace. Five acquisitions were completed in financial year 2015/16 and the proposed purchase of Gopaca will expand its exposure to Iberia.
DS Smith has invested significantly in display products and services. It acquired Creo in June 2016 and Deku-Pack and they build on DS Smith’s exposure to the retail and media markets. DS Smith notes the uncertainty in Europe but feels that its organic growth and acquisition-led growth prospects are bright and it is confident about its future performance.
In 2016, DS Smith has risen by 6%. This is behind the performance of industrial peers such as BAE Systems plc (LON:BA), Rolls-Royce Holding PLC (LON:RR), Royal Mail PLC (LON:RMG) and GKN plc (LON:GKN). BAE is up by 11%, Rolls-Royce is 36% higher than at the start of the year, Royal Mail has moved 16% higher and GKN has delivered 7% capital gains.
In my view, DS Smith is a sound business which is well diversified both geographically and in its mix of organic and acquisition-led growth strategies. Its P/E of 13.8 is fair value in my opinion. Although Brexit may cause uncertainty, I feel DS Smith has long term investment appeal.
The author owns shares in BAE but not in DS Smith, Rolls-Royce, Royal Mail or GKN at the time of writing.