Smurfit Kappa Group
French containerboard price declines match OCC falls; SKG looks cheap
25 May 2012
FACTS: Latest data from RISI confirm that both French recycled containerboard and OCC prices declined by €20/tonne in May.
ANALYSIS: The fall in containerboard prices matches that reported in Germany earlier this month and follows weakness in OCC pricing.
The weakness in OCC pricing is due to a combination of weaker European demand combined with low Chinese buying as shipping capacity remains constrained. Weaker-than-expected PMI data for the eurozone, a good lead indicator for industrial production and therefore corrugated box demand, will do little to help sentiment.
DAVY VIEW: The fall in recycled containerboard prices in May does not threaten our full year forecasts for SKG. We are already assuming a 2.5% decline in corrugated volumes in 2012 with only a marginal price increase in the second half. On this basis, the stock is trading at less than 4 times 2012 EBITDA, which looks very cheap on an absolute and relative basis.