• Smurfit Kappa released a Q3 22A trading update this morning: Q3 22A revenue increased by 28% y/y (-1% q/q), while EBITDA increased by 31% y/y but down 10% q/q to EUR 593mn. Accordingly, the Q3 22A EBITDA margin was 17.8% (+35bps y/y and -188bps q/q).
  • Corrugated growth for the nine months ended 30 September was flat, with Q3 volumes in the red: Overall, corrugated box volume growth was in the red at -3% y/y, in both Europe (“UK and Germany have been underwhelming”) and the Americas (Columbia flat y/y after seeing +30% growth last year). This has been driven by a demand shift from durables to services, coupled with the impact from war and inflation also impacting volumes adversely. In terms of e-commerce volumes, SKG confirmed they do not have significant customer concentration.
  • Smurfit continues to recover costs in its corrugated box system: Corrugated pricing increased by 2-3% q/q. However, Smurfit flagged that this will be tough to maintain as costs are moderating.
  • Significant cost inflation led by energy; however, signs that costs are moderating: SKG would not provide guidance on the FY 23E energy headwind, however indicated that this would be EUR 800mn in FY 22E (previously around EUR 700mn). SKG are seeing strong signs of cost relief seen in distribution, logistics, OCC, and energy. This will make it tough to implement further price increases.
  • FY 22E set to be SKG’s best year ever, complimented by its strongest capital structure (net debt/EBITDA 1.4x): SKG confirmed it has a “myriad of opportunities” to improve its cost position. In terms of order books, Q4 is likely to be similar to Q3 as the usual uptick in volumes during October ahead of the Christmas season has not been seen. Encouragingly, SKG believes German demand is likely to recovery quickly as energy concerns subside. With lots of industry testliner downtime taken in Q3 (including themselves), containerboard stock levels are “not too bad”. With cost relief currently seen, containerboard margins have rapidly expanded and SKG expects “that some of the increases must be given back to the market”, hence have already seen some peers confirm price declines.
  • SKG estimates FY 22E EBITDA of c. EUR 2.3bn (5% higher than Bloomberg Consensus): This implies growth of 35% y/y, compared to Mondi’s 59% (CRe). FY guidance implies that Q4 EBITDA is expected to increase by 14% y/y (-10% q/q) to EUR 533mn.

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