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ISEQ higher-Smurfit Kappa results

Wednesday, February 06 09:09:41

The ISEQ is significantly higher this morning at 3575, up 45 points as markets rebound from recent dips. Smurfit Kappa is among those reporting and Davy Stockbrokers comments:

Smurfit Kappa Group has spent the last four years aggressively paying down debt in order to restore leverage levels to more reasonable levels. With net debt/EBITDA of 2.7 times and falling, this objective has now been largely achieved. The company can now look at other ways of deploying its consistently strong free cash-flow.

A 37pc increase in the dividend is a clear indication of the company's intention to reward shareholders. Its reiteration of its commitment to maintain net debt/EBITDA below three times also provides investors with comfort that this management team is not going to pursue an aggressive acquisition strategy, clearing the way for it to pursue its stated objective of a "progressive dividend policy".

Now that the balance sheet is under control, the private equity 'overhang' cleared and the stock paying a 3pc dividend yield, there is no apparent reason why SKG should continue to trade at a 30pc valuation discount to the sector. With pricing/earnings momentum likely to remain stable/positive (this company consistently beats market earnings forecasts), the stock should re-rate this year. For this reason, it remains one of our top picks for 2013 according to Davy Stockbrokers.