Powerflute

Aided by strong selling prices and strong demand for its products, packaging to paper group Powerflute (POWR) has reported a swing to the black.

Following the disposal of its Scheufelen Graphic Papers business in May for €38.5 million, Powerflute now has one trading subsidiary: Savon Sellu. This is a paper mill in Finland that produces up to 300,000 tonnes of Nordic semi-chemical fluting per annum. Made from birch it is used in corrugated boxes, largely used for the transportation of fruit and vegetables, industrial goods and appliances.

In the six months to June sales from continuing operations increased 15% to €58.3m, which helped it achieve a pre-tax profit of €5.6m (2010: €1.6m loss). This was despite a planned 21 day shutdown for maintenance and to facilitate capital investment - however, this will improve its performance in the second half.

The sale of its Graphics arm has boosted its financial position significantly, leaving it effectively debt-free and in a position to consider further acquisitions of underperforming businesses. It was recently close to doing one deal, only to be pipped at the post by a private-equity firm with deeper pockets.

Broker Collins Stewart predicts EBITDA of €17m and adjusted EPS of 2.4p. Experienced operator Dermot Smurfit remains as chairman and undoubtedly plans further deals. With current trading good, and the operating environment 'broadly favourable' we rate the shares as a hold.