With the current climate change talks in Paris attracting protesters, it’s clear that more and more people are becoming conscious about going green. That is good news for DS Smith plc (SMDS.L) which designs and makes recycled packaging and products for consumer goods and construction. Let’s open the box and look at the company’s earnings prospects.
With companies in Europe’s STOXX 600 reporting results, we see a positive Predicted Surprise of 5.8% for DS Smith, which leads us to believe that the company will beat estimates when it reports half yearly earnings on Dec. 4.
Tying up acquisitions
As you can see in the chart above, DS Smith has been generating strong cash flows from operations. That has enabled the company to make some strategic acquisitions. Unlike most acquisitions, these seem to be accretive, and the company has taken advantage of synergies to improve efficiency.
Source: Eikon/StarMine
Packing good RNOA
In fact, over the past three years, return on net operating assets has been increasing and is now at 14.7%, on par with the industry median after trailing it for the past few years. Interestingly, the improved efficiency at DS Smith is not an industry-wide trend. Since 2013, DS Smith’s operating efficiency increased to almost 15% from 10%, while the rest of the industry remained flat. Those efficiencies are a product of improving margins as well as strong execution while integrating innovative companies into the fold.
Source: Eikon/StarMine
Wrapping up results
DS Smith is turning recycled products into strong earnings. The I/B/E/S consensus estimate calls for earnings of £12.18. The SmartEstimate, which puts more weight on the latest and best analyst estimates, is at £12.88, with the most recent estimates far above the consensus. Look for DS Smith to beat estimates this quarter as it continues to increase its business organically as well as through strategic acquisitions.
