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(Alliance News) - DS Smith PLC has defied the odds by increasing its annual profit through cost control, improved products and strong customer relations, reassuring analysts of its resilience despite "a tough year to come".
Shares in DS Smith were down 1.0% on Thursday in London at 287.40 pence. Over the past year the stock has risen by 0.1%.
The packaging company on Thursday said adjusted operating profit for the year ended April 30 was up 40% to GBP861 million from GBP616 million the year before. This was well into the upper end of analysts' April guidance of between GBP850 million and GBP860 million.
Revenue meanwhile increased 14% to GBP8.22 billion from GBP7.24 billion, and pretax profit increased 75% to GBP661 million from GBP378 million. Adjusted return on sales increased by 200 basis points to 10.5% from 8.5%, within DS Smith's medium-term target of between 10% and 12%.
This was despite organic corrugated box volume declining by 5.8%, compared with a 5.4% increase the previous year. Neil Shah, director of research at Edison Group, also noted "the higher cost of paper following the cost-of-living crisis".
DS Smith said it was able to offset the reduced volumes through its cost and risk management strategies, as well as price increases in line with inflation and by improving its products. Peel Hunt analyst Harry Phillips agreed, saying that "the profit growth and 10.5% margin is testament to good management on the cost side."
Edison's Shah meanwhile concurred that effective cost mitigation and product improvements "have undoubtedly shaped [DS Smith's] results," but added: "the power of customer loyalty should not be understated...DS has an edge based on [its] strong customer relations with [prominent firms like Amazon and Brewdog] which are heavily reliant on box packing and paper for their operations."
Looking ahead, DS Smith said that trading was currently in line with expectations, despite continuing lower volumes and a tough economic backdrop.
"Our strong customer relationships in the resilient [fast-moving consumer goods] sector, together with the investments we are making to drive cost efficiencies and growth, give us confidence for the future," it added.
Jefferies' Cole Hathorn said the outlook was "broadly reassuring". Jefferies rates DS Smith at 'buy' with a target price of 400.00p per share.
Peel Hunt's Phillips forecast "a tough year to come" but added: "This is not new news and the platform has demonstrated its robustness." Peel Hunt maintained its 'buy' rating with a 450.0p per share target price.
Danni Hewson, head of financial analysis at AJ Bell, was slightly more sceptical. "Packaging firms tend to closely follow GDP and so the lower volumes...were no great surprise, however [DS Smith] was able to compensate by increasing prices," she commented, "How long it is able to do so is an open question."
By Emma Curzon, Alliance News reporter
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