2024-07-02 08:25:53 ET
Summary
- DS Smith is not a wonderful business in the Buffett sense, with declining returns despite revenue and profit growth over the past decade.
- I also have doubts about the company delivering one of its strategic goals of "double the size and profitability."
- The proposed combination with International Paper may provide synergy, but there is no margin of safety in DS Smith's standalone valuation.
Investment thesis
DS Smith ( OTCPK:DITHF ) (LSE:SMDS.L) is not a wonderful business in the Buffett sense. Although revenue and profit grew over the past decade, returns were trending down. It was not a productivity or efficiency-led growth.
My valuation of DS Smith as a standalone business showed no margin of safety. The market has priced in some synergy from the proposed combination with International Paper. Whether this is realistic would depend on the analysis to be covered in part 3 of this series.
Thrust of my analysis
A couple of months ago, International Paper and DS Smith announced a combination that would be a game-changer for both of them. However, this was almost derailed by the subsequent talk of Suzano acquiring International Paper....
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For further details see:
DS Smith: Not A Wonderful Company Being Overpriced