DS Smith: outside the box Corporate transformations achieved through acquisitions are always hard to judge in the early days. Barring calamitous discoveries, the rationale is invariably reiterated, synergy figures updated and balance sheet management emphasised. Yet as assets move in and out of the accounts, it can be hard for investors to discern underlying trends. Recycled packaging group DS Smith is a case in point. Investors who backed its €1.6bn reverse takeover of the packaging operations of Sweden's SCA can only feel pleased so far: Smith's shares, up 5 per cent after Thursday's 2012-13 results, have risen more than 70 per cent since that purchase closed a year ago, trouncing the packaging sector. The deal gives the UK group more scale and a better footprint in Europe's €30bn cardboard packaging market. A dispute over the final acquisition price is being worked out, and cost synergy targets have been steadily upgraded, from €75m a year to €120m. One-third has been achieved, with the rest due by 2014-15. Nothing has yet been said about revenue synergies - the sometimes flakier benefits of cross-selling - though this may be addressed in the autumn. The balance sheet looks to be under control: net debt at the end of April approached £820m, compared with £320m of cash a year earlier, but this was less than twice earnings before interest, tax, depreciation and amortisation. Free cash flow is solid. The end market, though, looks far less encouraging, with Smith's corrugated box volumes growing 0.6 per cent last year and the pro forma return on sales flat. The group has a good record of managing energy and raw material costs, but the European backdrop is anything but kind. So more deals can probably be expected as self-help continues. That leaves Smith's shares on 11 times 2014 earnings estimates - not pricey so long as the deal music continues.