The Magic Fluting: Creating Sustainable Value in European Packaging

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In 2008, soon after Smurfit-Kappa had listed on the Dublin and London stock exchanges the business was widely regarded as on the brink of bankruptcy. The Great Financial Crisis caused revenues and profits to decline and investors took fright.

A €500.00 million bond issue was launched in late 2009 which stabilised the company’s finances, but added to the already excessive levels of debt that it had built up while under private equity ownership before listing in 2007.

Since then, the company has built up an enviable position as a leader in the sustainable packaging market. Smurfit Kappa has responded to clients’ demands to cut costs in their supply-chains by developing innovative packaging materials and designs that cut weight, wastage and stream-lined logistics.

By using over 75% recycled material the company also helps to minimise raw material costs and provides attractive reputational benefits for clients. The company also maintains high sustainability standards for its forestry and paper operations, which underpin the company’s strong sustainability credentials.

As a consequence, Smurfit Kappa’s share price has nearly trebled since 2013 (from around €11.00 per share to €33.00 at the end of March 2018). The stock has also outperformed the Irish market by nearly 100% since 2013.

We believe that Smurfit Kappa continues to offer attractive investment opportunities because:

  1. Market interest in recycled cardboard packaging has been boosted by concerns over the environmental impact of plastic packaging waste which we expect to lead to stronger market growth.
  2. Smurfit Kappa has invested in a state-of-the-art innovation centre in the Netherlands, which enables the company to get closer to customers and drive revenue growth 1-2% ahead of the wider market.
  3. Meanwhile, efficient operations and cost controls have enabled the company to grow EBITDA margins into the low teens with an ambition to get above 15%.
  4. Astute management and a long-term shift to more sustainable packaging materials has enabled the company to build a high quality franchise in Europe with a platform for growth in the Americas.

This stock was held by our WHEB Sustainable Impact Fund.


This report has been prepared by Pengana Investment Management Ltd (ABN 69 063 081 612), Australian Financial Services Licence No. 219462) (“Pengana”).  This report does not contain any investment recommendation or investment advice and has been prepared without taking account of any person’s objectives, financial situation or needs.  Therefore, before acting on the information in this report a person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs.
Pengana is the issuer of units in the Pengana WHEB Sustainable Impact Fund (ARSN 121 915 526) (“the Fund”).  A Product Disclosure Statement for the Fund (“PDS”) is available and can be obtained by contacting Pengana on (02) 8524 9900.  A person who is considering investing in the Fund should obtain the relevant PDS and should consider the PDS carefully and consult with their financial adviser to determine whether the Fund is appropriate for them before deciding whether to invest in, or to continue to hold, units in the Fund.
The value of investments can go up and down.  Past performance is not a reliable indicator of past performance.
While care has been taken in the preparation of this report, Pengana makes no representation or warranty as to the accuracy, currency or completeness of any statement, data or value.  To the maximum extent permitted by law, Pengana expressly disclaims any liability which may arise out of the provision to, or use by, any person of this report.

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