Smurfit, the world's biggest maker of corrugated packaging, said full-year earnings totalled €1.06bn after it lifted prices in Europe and tapped into rising demand in Latin America.
The fourth-quarter outturn rose 8% to €275m, beating consensus estimates of €265m, even though a 4% rise in revenue was shy of forecasts - at €1.82bn versus expectations of €1.88bn. Profit margin held at 15.1%, unchanged from the third quarter.
"This strong performance reflects a generally positive price environment in Europe, the continuing drive to maximize the benefits of the merger and a strong contribution from the group's Latin American businesses," Chief Executive Officer Gary McGann said.
"Assuming current market conditions prevail, Smurfit expects modest EBITDA growth for 2008 together with continuing strong free cash flow generation," he added.
Analysts at Davy had been forecasting 8% growth in EBITDA in 2008, implying an outturn of about €1.16bn. They put their expectations under review.
However, the broker argued that Smurfit shares look cheap even if the 2008 forecast falls to €1.1bn, as this would put shares at an EBITDA multiple of just 4.9.
"More significantly – based on this EBITDA estimate – Smurfit will generate over €400m in free cashflow, implying a yield of over 20%," Davy's team highlighted.
The broker also noted that Smurfit's total debt slipped to €3.4bn, or 3.2 times EBITDA, which is outside the 3.25-4.25 range set by the company at the time of its flotation.
Smurfit, which was formed by Jefferson Smurfit's purchase of Dutch rival Kappa Packaging in 2005, added that it will reach an increased target of €180m in cost savings from the union by the end of 2008.
Shares fell 2% to €9.01. They have dropped about 50% since the IPO a year ago, sharply underperforming the FTSE 350 index.
