In the eyes of Tony Smurfit, CEO of Smurfit Westrock, transitioning a company’s stock listing to New York would only be beneficial for European firms with substantial businesses in America. Since recently shifting from the London market to the NYSE, the chief of the freshly combined packaging superpower is hopeful that this will increase its share price and valuation significantly. From July 8th, Smurfit Westrock, headquartered in Dublin, began its trade on the New York exchange and is one of many businesses that have shifted their main listing from London to capitalise on larger capital markets.
Smurfit mentioned to the Financial Times that an increase in the share price would be a convincing indicator of the shift’s success. With targets of saving $400 million from the $20 billion merger between Smurfit Kappa of Ireland and WestRock in the US, shares in this packaging powerhouse initiated trading at $47.40 each in New York, with the merger having been finalised on July 5th.
According to Justin Jordan of brokerage Davy, the company currently trades at a valuation discount of over 20% compared to its American counterparts, International Paper and Packaging Corporation of America. However, as confidence in the merger grows, a positive re-rating in line with these firms is projected. Jordan is targeting a share price of $65.
Both Jordan and Smurfit also comment on US industry and price trends. Jordan noted the recovery in demand and prices after a down period last year. Smurfit acknowledged the rise in the cost of waste paper, a fundamental input, which has increased by 50% in recent months. As a result, the company has boosted its prices by 30 to 35% since the start of 2021.
As the year progresses, Smurfit Westrock plans to continue raising box prices, which Smurfit believes will enhance profitability. Although he refrained from making financial predictions, he was optimistic about future waste paper price trends in light of the world’s continued growth.
Last year saw a 3.5% decline in volumes as the Covid-19 spurred need for ecommerce and cardboard packaging abated, resulting in a dip in shares for firms such as Smurfit, WestRock and International Paper from their 2021 peaks. 2023 observed an 18% drop in pre-tax profits to a little more than €1 billion, however, the group maintained its standard listing in London, and increased the dividend by 10%, a move referred to by Smurfit as marking the second most successful year in its 90-year lifespan based on various key performance indicators.
The decision to primarily list in New York echoes the path of Irish construction materials conglomerate CRH and other firms seeking higher valuations in the US market. Nonetheless, Smurfit emphasised that this move was only logical for companies with a significant US footprint, forecasting that he would now be spending between 25-30% of his time in America.
Mr Smurfit indicated that the change might have led to the loss of “one or two” UK investors and resulted in a slight reshuffling of funds, but overall, the impacts were not too significant. He remained optimistic about achieving the projected $400 million in efficiency savings from their merger with WestRock, affirming that all targets had been met thus far.
Mr Smurfit also stated that the company planned to optimise the use of its assets and continue to make prudent investments where suitable. – Copyright The Financial Times Limited 2024.