Threatened by too much cardboard

By John Murray Brown

Published: December 1 2007 02:00 | Last updated: December 1 2007 02:00

Smurfit Kappa has done everything right since returning to the public markets in March, yet the share price of the paper and packaging company has fallen almost 30 per cent. Since merging with Kappa Industries, the Dutch rival, in 2005, Gary McGann, chief executive, has been unselfishly closing factories in a bid to tighten supply conditions for the benefit of all producers. The rationalisation has allowed the industry to announce an unprecedented series of price increases - yet to little avail as far as investors are concerned. One theory is that in these difficult credit markets, the company's leveraged business model - a legacy of its brief interlude under private equity ownership - is out of favour. But it is paying down debt ahead of plans. Mr McGann and other directors bought shares this week - in a bid to encourage investors. But perhaps the biggest worry is that in spite of all Smurfit Kappa's good work, the recent increases in cardboard box prices appear to be encouraging other producers to add capacity. With the growth in box demand fairly flat, any additional capacity will have a huge impact on demand and thus on price, and ultimately on Smurfit Kappa's share price. John Murray Brown