Smurfit Kappa gets a boost as Numis bumps up price target

Numis upped its price target on paper and packaging company Smurfit Kappa to 2,800p from 2,600p as its sum-of-the parts valuation approach is now based on 2018 forecasts.

The brokerage applies a multiple of 8.25x to its 2018 EBITDA estimate for Europe and a multiple of 9.0x to its 2018 EBITDA estimate for the Americas, in line with the US peer average.

It said the new target price implies upside of 11% from the current share price and as a result, Numis kept its rating on the stock at 'add'. It said its SOTP target price reflects the diversified portfolio of European, North and South American assets that Smurfit offers exposure to.

The brokerage pointed out that on 2018 price-to-earnings and EV/EBITDA multiples of 12.8x and 7.7x, Smurfit trades at a discount to its London-listed peers, which looks modest in the current pricing environment.

Numis forecasts fourth-quarter revenue of €2.18bn, EBITDA of €341m and adjusted EBIT of €232m. This drives full-year forecasts for revenue of €8.56bn, EBITDA of €1.23bn and adjusted EBIT of €807m. The brokerage expects free cash flow generation to continue the deleveraging process, leading to net debt/EBITDA of 2.3x and return on capital employed of 15.3% for 2017.

"We expect Q4 to demonstrate further input cost recovery with price increases driving sequential margin improvement during the quarter. Our Q4 EBITDA margin forecast of 15.6% implies a full year forecast of 14.4%, as price increases have lagged cost increases during the year."

At 1550 GMT, the shares were up 1.7% to 2,570p.