New structural driver accelerates demand: Between 2014 and 2019, we estimate new demand drivers (mainly e-commerce) have added 100-150bps to corrugated growth with an incremental step change in 2020. We expect e-commerce to remain a structural demand driver. The new trend in sustainable packaging should benefit corrugated packaging producers. We see new structural drivers adding 150bps to corrugated demand CAGR through 2023E.

Sustainable returns above cost of capital: Consolidation has improved industry structures, creating industry leaders with competitive advantages. Industry returns have generally improved, but a few companies stand out, where highly accretive capital allocation has driven structurally improved margins and, most importantly, sustainably higher returns, considerably above cost of capital. We highlight Smurfit Kappa (SKG) as the most accretive capital allocator.

Strong earnings momentum building: While we lower our 2021 estimates on up-front cost factors, we see strong earnings momentum building and slightly increase our 2022-23 estimates. We raise our target prices across our containerboard industry coverage. WestRock (WRK) stands out on valuation. SKG’s earnings stability and accretive capital allocation justifies a rerating, in our view. Mondi is most exposed to a packaging paper/board commodity price recovery and recent low-cost growth investments are well timed to benefit from strong demand trends. We rate all three Outperform. International Paper (IP) is in transition (disposing of assets and spinning off paper), and we maintain our Neutral rating. We initiate coverage of DS Smith with a Neutral rating in an accompanying report.