Smurfit Kappa shares fall as Goldman pulls ‘buy’ rating

Shares in Smurfit Kappa fell on Thursday morning as analysts in Goldman Sachs downgraded their rating on the cardboard box-making giant's stock on valuation grounds following a strong performance so far this year.

Goldman Sachs analysts, including Kevin Hellegard, reduced their recommendation on the stock to "neutral" from "buy" and lowered the share price target by €1 to €29.

Smurfit Kappa’s stock fell as much as 2.4 per cent to €26.83 in Dublin in early trading.

The Dublin-based paper packaging group's stock has risen almost 24 per cent so far this year, making it the second biggest gainer on the Iseq 20 index, marginally behind aviation group Ryanair.

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In February, the group posted a better-than-expected 5 per cent increase in 2016 earnings before interest, tax, depreciation and amortisation to €1.24 billion. Three months later it accompanied a shallower-than-expected 1 per cent drop in first quarter earnings with a vow to focus on increasing cardboard box prices for the remainder of 2017 to recover soaring input costs.

The company has, along with the wider industry, announced a series of price increases for containerboard, which is used to make cardboard boxes, in recent times. The focus now has switched to raising prices of the end product.

Goldman Sachs noted that Smurfit Kappa’s shares have performed better than the wider paper packaging sector so far this year and, as a result, it sees more upside elsewhere.

“We downgrade Smurfit Kappa to neutral from buy on recent outperformance post containerboard price increases and market expectations of margin expansion,” the Goldman Sachs analysts said.