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DS Smith share price starts to see benefits of the e-commerce shift

A worker lifts some flattened cardboard boxes

Earlier this month the DS Smith share price hit its highest level since October 2018, having declined from record highs in July of that year to lose halve its value, before rebounding from five-year lows in March last year, as the paper and cardboard packaging company reaped the benefits of a shift to e-commerce in the wake of the pandemic.

DS Smith share price boosted after Mondi bid

In February, the attractions of the business came to the fore when the company was in the news after reportedly being subject to a £5bn bid from rival Mondi, and which has seen DS Smith's share price continue to drive higher, with the shares slowly edging higher over the past few weeks to the best levels since those 2018 peaks.

While it has gone quiet on this front, as far as trading is concerned the company has been performing well after a weak start to the year. In March, the company reported a strong period of trading over the Christmas and new year period, with higher costs being passed on to its customers.

Dividend resumes in second half

The company supplies packaging to the likes of Amazon, Nestle and Unilever, and while profit in the first half of the year halved due to higher costs, the outlook for the second half was more optimistic, with management pledging to resume paying a dividend as cashflow picked up. They made good on this promise in December with an interim of 4p at the end of last year.

Full-year revenue came in just shy of £6bn at £5.975bn, down 1% from last year, with profit-before-tax falling 37% to £231m. However, the second half performance was much better than the first, with H2 operating profit rising to £272m, up from £231m in the first six months.

The US business has been a key driver of this recovery, with a rise in operating profit there of 70%, with the board announcing a final dividend of 8.1p per share, taking the total dividend to 12.1p for the year.

In terms of the outlook, while rising costs hampered profitability in the first half of the year and are still proving to be a headwind, the current financial year has seen a solid beginning, with management insisting that those additional costs would be recovered. Capital expenditure for 2021-2022 is expected to increase to £430m, as the company invests in its digital platforms, as well as making other efficiencies.

DS Smith's share price has slipped back in early trading, but the shares are still up over 10% so far this year.

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