On Friday, Deutsche Bank (ETR:DBKGn) updated its outlook on DS Smith Plc (SMDS:LN) (OTC: DITHF), increasing the price target to GBP5.80 from GBP4.00, while retaining a Hold rating on the stock. The revised price target follows the company's first-half financial results for fiscal year 2025.
DS Smith reported a group revenue of £3,371 million, a decrease of 4% year-on-year, and a 2% decline on a constant currency basis. This was attributed to a combination of factors including a like-for-like volume growth of 2% and lower selling prices. Adjusted EBIT fell to £221 million, dropping by 39% compared to the same period last year, and by 38% on a constant currency basis.
The significant change in adjusted EBIT was primarily due to the delay in packaging pricing adjustments to match input cost increases, which accounted for over 90% of the EBIT change from the first half of fiscal year 2024. Consequently, the adjusted EBIT margin stood at 6.6%, down from 10.4% in the previous year. Adjusted earnings per share also declined by 53% to 8.3p, and by 52% on a constant currency basis. Nevertheless, DS Smith announced an interim dividend per share of 6.2p, marking a 3% increase year-over-year.
Looking ahead to the second half of fiscal year 2025, DS Smith anticipates modest volume growth of approximately 2%. The company has also noted sequential price increases to date, which are expected to contribute to an improved adjusted EBIT.
Despite DS Smith's history of effectively recovering costs, the recent trend in price deflation has prompted a more cautious outlook from Deutsche Bank regarding the company's ability to continue this process in the upcoming quarters.
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