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ISEQ steady-Smurfit Kappa examined

Tuesday, September 25 08:47:08

The ISEQ opened steady this morning at 3,324, down just 4 points on yesterday's close as markets are mixed around the world. China saw some significant downward correction while Tokyo was up a little for local technical reasons. European markets opened mixed with indications that there may be some upside today ?.

Smurfit Kappa's US acquisition is examined by NCB Stockbrokers:

Smurfit Kappa Group plc announced yesterday that it has agreed to acquire Orange County Container Group ("OCCG") for a total cash consideration of $340m (c.E260m).

Analysis: OCCG is a private corrugated and containerboard manufacturer with operations in Northern Mexico and the Southern US. OCCG employs 2,800 people (2,000 in Mexico), and is expected to generate $53m of EBITDA for the full year to December 2012. The integration of OCCG with Smurfit Kappa's existing businesses is expected to deliver at least $14m of synergies by the end of year 2.

The $340m cash consideration will be fully funded from the Group's existing cash resources. Given that OCCG's pre-synergies FY2012 EBITDA is expected to be $53m, the acquisition consideration implies a pro-forma FY2012 multiple of 6.4x before synergies, or 5.1x after synergies. The gross assets of the business being acquired are approximately $325m, and the profit before tax for the year to December 2011 was $6.3m.

Conclusion & Action: It is anticipated that the transaction will complete in the fourth quarter of 2012 and is expected to be earnings accretive on completion. The OCCG business will then be progressively integrated with the Group's operations in Mexico. Assuming the $14m of synergies can be achieved by the end of 2014, we estimate that the acquisition could add 6-7pc to Group earnings according to NCB Stockbrokers.