Broker snap: Investec sees upside risk to forecasts at DS Smith

5th Dec 2013 10:36

Investec has upped its target price for DS Smith from 340p to 350p after a better-than-expected first half from the packaging group, saying there is now upside risk to full-year forecasts.The broker retained its 'buy' recommendation for the shares.Revenues came in at £2,081m during the first six months of the year, up 25% year-on-year and 1.5% ahead of Investec's forecast. Meanwhile, adjusted operating profit jumped 31% to £160.2m, 4.7% above estimates."We see these interim results as very solid, driven by improving volumes and market share gains, in line with the medium term targets. The recent input price increases, while a short-term headwind, do present an opportunity to sell innovation and reduce paper content in the box. "We leave estimated 2014 fiscal year forecasts unchanged, but with upside risk and being mindful of the first half bias. We expect to upgrade our estimates for the 2015 fiscal year adjusted operating profit by approximately 2% towards £340m," the broker said.Numis Securites also upgraded its rating for DS Smith from 'hold' to 'add', saying that the business as a positive near- and long-term outlook.The broker has 349p target price for the stock, valuing it at 14 times full-year earnings for the year ending April 2014 (24.9p)."Our 14x rating reflects the improving return on capital employed and the opportunities for growth in an industry which now has much improved capital discipline."The stock was 6.35% higher at 318p by 11:18 on Thursday.BC