Recovery signs may emerge next year

JEFFERSON Smurfit Group caused no surprises with its interim figures

JEFFERSON Smurfit Group caused no surprises with its interim figures. And, as a result, the expectation for the full year, and for 1997, are unchanged.

NCB analyst, Mr John Conroy, said his forecasts will not be altered.

NCB is looking for a pre-tax profit of £204 million for 1996 and an earning per share of 13p. This is expected to fill to £153 million in 1997. However, if there are any surprises, NCB expects them to be on the upside.

Prices are the life-blood of the group. They caused the decline at the interim stage and will be responsible for the further slippage in profits for the full year.

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Mr Ray Curran, finance director, did not make any precise predictions about prices yesterday as he outlined the interim results. An understandable stance since previous predictions, by US analysts, about prices, did not materialise.

Price increases for containerboard have been announced in the US and Europe. The question now is; will they stick? The general view is that it could be October before they come into effect.

Smurfit concedes that the effect of any such price increase is likely to occur too late to affect operational results for 1996.

"We would concur with those specialist paper and forest products analysts who see sometime in 1997 as being the time for recovery in the overall paper sector with containerboard leading this recovery," is how the group sees it.

Mr Curran said the group sees a period of more rapid price changes. Asked if this would mean the group is facing a more cyclical profit record, he stressed that the cycles may be shorter but less severe.

In Ireland, packaging volumes are expected to recover in the second six months. The British corrugated market continues to be over supplied. In France its facture mill has shown some improvement towards the end of June and there are said to be encouraging signs for its coated wood free division.

In Holland, the converting and solid board operations are performing ahead of expectations. Elsewhere in continental Europe, trading is in general depressed. In Latin America where profit before interest and tax fell from £44.1 million to £30.1 million in the first half, the operations had to contend with a 40 per cent drop in exports due to lower US economic activity.

While some improvements are detectable - some of the economic indicators in Mexico are more positive - there is unlikely to be much joy from these operations this year.

Smurfit does not anticipate any major acquisitions, though Mr Curran conceded that it has the ability to spend between $1 billion and $1.5 billion without going to shareholders. Instead, the acquisitions are likely to be bolt-on.

Smurfit, he said, continues to be interested in the Far East where it has operations (in Hong Kong, Singapore and China). These, however, will be small. The group shares, unchanged at 165.5p (12 months high 200p,low 142p) are on a prospective p/e of 12.7.