FTSE 100 stock Smurfit Kappa (LSE:SKG) is a provider of paper-based packaging solutions. It currently has the advantage of supplying the needs of e-commerce, which has boomed during the Covid-19 pandemic.
Retail platforms experienced an unprecedented increase in global traffic between January 2019 and June 2020. Levels even passed holiday season peaks. Retail websites generated almost 22bn visits in June 2020 alone.
FTSE 100 opportunity
I believe the pandemic has changed the way we shop forever. Many firms have invested lots of money into e-commerce and the infrastructure to ensure it operates effectively. These companies need sustainable and cutting-edge packaging solutions. This is where Smurfit Kappa comes in.
Between the beginning and end of March 2020, Smurfit lost close to 30% of its share price value. At its lowest point, shares could be picked up for 2,078p per share. Since that time, however, it has experienced a steady increase and is currently trading for over 3,500p per share, which has surpassed pre-crash levels. This is also a five-year high. I believe Smurfit presents a good FTSE 100 opportunity and may experience a further rise too.
Positive full-year results
Last month Smurfit confirmed final results for the year ending 31 December 2020. There were some key positive takeaways in my opinion. Results highlighted excellent performance, as well as future potential in my eyes.
Smurfit’s revenue increased by 6% compared to 2019 results. As a result of this, profit before income tax rose by 10% compared to 2019. It also reported record free cash flow of €675m which is a 23% increase. It also managed to reduce net debt by a whopping 32%. SKG was probably one of the few FTSE 100 firms to meet all dividend commitments in 2020. Based on excellent performance it’s board recommended an increase in the final dividend by 8% to 87.4 cents per share.
Group CEO Tony Smurfit’s comments about results and particularly the future of the industry fill me with confidence about a stock I was already bullish about. He said, “Driven by strong secular trends such as e-commerce and sustainability, the outlook for our industry is increasingly positive.”
Risk and reward
Like with any FTSE 100 stock, there are risks to consider carefully before I invest my hard-earned cash. It is clear to see Smurfit has benefited from the pandemic. However, despite an increase in revenue and profit, this could have been substantially more. FY results show costs and input have risen substantially. My concern here is that as shopping habits divert towards online platforms further, costs may increase too, essentially affecting the bottom line of firms like Smurfit Kappa.
In addition to rising costs, there is the chance that shoppers are itching to get out and shop in the traditional manner. The easing of restrictions may mean shoppers hit the high street and Smurfit may not experience such a demand for its services like in 2020.
Overall, I am bullish about Smurfit Kappa and view it as a FTSE 100 opportunity. It is a firm which has a niche offering for the e-commerce sector. Furthermore, it has a large enough footprint and presence to possess a healthy market share in the packaging industry. I will continue to monitor financials and developments as restrictions ease, however.
Away from the FTSE 100, I have recently been looking at penny stocks for my ISA before the 5 April deadline.
