DS Smith (SMDS Stock) starts to see benefits of the e-commerce shift

Earlier this month DS Smith share price hit its highest level since October 2018, having declined from record highs in July of that year to lose halve its value, before rebounding from five-year lows in March of last year as the paper and cardboard packaging company reaped the benefits to a shift to e-commerce in the wake of the pandemic.

In February, the attractions of the business came to the fore when the company was in the news after reportedly being subject to a £5bn bid from rival Mondi, and which has seen the shares continues to drive higher which has seen the shares slowly edge higher these past few weeks to the best levels since those 2018 peaks.

While it has gone quiet on this front, as far as trading is concerned the company has been performing well, after a weak start to the year.  

In March the company reported a strong period of trading over the Christmas and New Year period with higher costs being passed on to its customers.

The company supplies packaging to the likes of Amazon, Nestle and Unilever and while profits in the first half of the year halved due to higher costs the outlook for the second half was more optimistic with management pledging to resume paying the dividend as cash flow picked up. They made good on this promise in December with an interim of 4p at the end of last year.

Full year revenues came in just shy of £6bn at £5.975bn, down 1% from last year, with profits before tax falling 37% to £231m, however the second half performance was much better than the first with H2 operating profits rising to £272m, up from £231m in H1.

The US business has been a key driver of this recovery with a rise in operating profits there of 70%, with the board announcing a final dividend of 8.1p per share, taking the total dividend to 12.1p for the year.

In terms of the outlook, while rising costs hampered profitability in the first half of the year, and are still proving to be a headwind, the current financial year has seen a solid beginning, with management insisting that those additional costs would be recovered.  

Capex for 2021/2022 is expected to increase to £430m as the company invests in its digital platforms, as well as making other efficiencies.

The shares have slipped back in early trading, but are still up over 10% year to date.