• DS Smith trading update this morning (from 1 May 2020): Positive corrugated volume growth in August, and dividends to resume.
  • August sees positive volume growth of 1-2% (like for like y/y): Good news for DS Smith as they lagged both Mondi (box volumes: +4.8%) and Smurfit (Europe box volumes: flat). Corrugated box volume development: April -4.5%; May -4.7%; June -4.0%. July “very good month”, August “reasonably positive”, and September started well.
  • E-commerce and FMCG have remained positive throughout, while Industrial is improving: Northern Europe has remained strong, while now seeing a recovery in Eastern (Poland especially) and Southern Europe (but Iberia still in the red). With e-commerce growth in the high teens, DS Smith are starting to build capacity for the “golden quarter” of the year, with their bullish view on the Christmas season.
  • They were “surprised” that testliner prices weakened, with a disconnect between demand and pricing: They acknowledge new supply coming online; however, were quick to highlight capacity that has also been down. They think there is a disconnect between pricing and robust demand they are seeing. They also flagged the export markets as being strong. Looking forward, they do not expect testliner prices to rebound significantly; but see limited downside from current levels.  
  • Following the dividend suspension (2-2.5x cover), DS Smith intends to resume divs: A decision will be made at the half-year as to whether dividends will be “caught-up”.
  • DS Smith remains focussed on lowering their integration levels from 80% to 60%: Their capacity is geared towards packaging (downstream) and prefer to be short testliner (low barriers of entry, in their view), with less capital tied up. They want to reduce their paper position as soon as possible and accordingly continue to review non-core assets. They noted that they have taken downtime of around 150-200kt. It appears that downtime is more likely than M&A, with them flagging M&A as “uncertain times”.
  • Further OCC cost relief expected: DS consumes c.4mtpa of OCC (Mondi: 1.3m). They have seen a flurry of purchases in other countries to try get the fibre into China as we move closer to China’s full wastepaper ban implementation in 2021. Looking forward, they expect OCC prices to drop further, but not significantly.  

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