Smurfit Kappa downgraded by Jefferies following 2020 outperformance

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Smurfit Kappa Group plc (LON:SKG) has been downgraded to ‘hold’ from ‘buy’ by analysts at Jefferies as the broker said share price upside was “more limited” following an outperformance by the packaging group in 2020.

In a note on Monday, Jefferies also retained its 3,450p target price on the FTSE 100 firm, saying it had managed to outperform its blue-chip packaging peers in 2020 and had delivered “solid operational and earnings resilience in a challenging macro environment”.

READ: Smurfit Kappa to pay second dividend as profits fall less than expected

“We are attracted to SKG’s resilient [free cash flow (FCF)] generation with €500-550mln [per annum] 2020-23 (or c6% implied FCF yield), its sustainable dividend covered by FCF (c3% divi yield), strong operational delivery on costs and its medium term demand growth tailwinds from e-commerce & sustainability (plastic to paper)… SKG has been investing in its asset base and continues to benefit from its growth & efficiency investments. Its scale, focus on innovation and operational footprint as the European #1 box maker makes it well-placed to convert plastic to corrugated and continue to gain market share from smaller packaging peers”, Jefferies said.

However, the broker said while they liked the business, the shares had outperformed in the 2020 year to date and that with “macro uncertainty & global containerboard supply growth of >4% ramping up in 2021, we believe that material further re-rating upside is more limited from here”.

Shares in Smurfit Kappa were down 0.3% at 3,236p in mid-morning trading.

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