The Complete Package? DS Smith plc Trading Tips

DS Smith plc is a packaging business, based in the United Kingdom. First listed on the London Stock Exchange in 1986, the firm is a member of the FTSE 250 Index.

Many looking to invest in ‘green’ shares look for cutting-edge, environmentally friendly IT solutions providers or innovative renewable energy technology. However, some of the most effective – and most profitable – businesses in the sector offer the least flashy products and services – and DS Smith is arguably such a firm. The company produces packaging made from recycled material, which delivers a double whammy; on the one hand, the company’s expenditure on materials is lowered (meaning the firm’s single biggest overhead is reduced), and on the other the current trend towards greener business practices mean DS Smith has a unique and attractive selling point over competitors that do not utilise recycled materials to manufacture their packaging products. Businesses are eager to demonstrate that their commercial activities do not harm the wider environment in the contemporary – and this en-masse movement is certainly borne out by DS Smith’s successes in the years post-2000, with profits steadily growing year on year for the first two decades of the 21st century.

As profits have grown, the company’s overseas operations have grown too. Between 2010 and 2014, the firm increased its worldwide presence to incorporate a number of key areas of continental Europe, including environmentally conscious states in Scandinavia, and emerging markets in Eastern Europe. DS Smith have consistently demonstrated an ability to be ahead of the curve when it comes to both design and capability, in a highly competitive sphere. The company’s successes have been reflected in earnings per share too, meaning investors are rewarded for their stakes every step of the way. DS Smith has also moved to earmark a certain portion of funds for dividends every year, meaning even in less flourishing periods, investors are guaranteed returns.

All this will amount to a strong argument for purchasing DS Smith shares for many investors. However, no share is ever an unqualified ‘buy’, and DS Smith shares are no different. One potential risk brewing on the horizon is the increasing reliance by consumer goods companies on ‘flexible packaging’; product containers composed of cheap materials that result in a lower carbon footprint due to their lightweight nature and production processes. While such products offer a cost-benefit to businesses and can reduce greenhouse gas emissions, such materials cannot be recycled at present. This creates two obvious problems – one being less of a reliance on recycled packaging, and less recyclable materials available to companies such as DS Smith. This is not necessarily a problem in the short-term, but it does pose serious threats to DS Smith’s business model and production processes – and future share price as a result. There is likely no pronounced need for caution in this instance, but all shares must be approached with a healthy degree of caution and scepticism. For the time being, DS Smith shares could be a value prospect for many.

Kit Klarenberg is a freelance journalist and communications professional, specialising in finance. Connect with him on LinkedIn, or Twitter.

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