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Mondi packs a punch

Sales fell slightly at packaging group Mondi, but good cost control helped lift operating profits
August 11, 2014

Prices for many of Mondi 's (MNDI) paper and packaging products have been falling as global production capacity has increased. So while first-half sales volumes were broadly unchanged on the previous year, group-wide turnover declined, slightly missing consensus expectations. But this was largely offset by better than expected cost control. That allowed Mondi to improve its underlying operating margin from 11 to 12 per cent, and hence boost operating profit 3 per cent to €377m (£301m).

IC TIP: Hold at 996p

Despite the supply glut, Mondi continues to invest. In addition to bringing new capacity on-stream - such as the recently commissioned 155,000-tonne bleached kraft paper machine at the Steti mill in the Czech Republic - management has been investing in green-energy infrastructure, for which the "return on capital is 20 to 30 per cent", claims chief executive David Hathorn. He spent €120m on such projects last year, followed by €70m in the first six months and a projected €160m in the current half.

Looking ahead, Mr Hathorn expects mid-single digit price increases for several packaging paper grades in the current half. Seven-tenths of Mondi's revenues are now packaging-related, with structural demand expected to improve as the European recovery takes hold.

Broker Jefferies expects full-year adjusted EPS of 101¢, rising to 107¢ next year (from 95¢ in 2013).

MONDI (MNDI)

ORD PRICE:996pMARKET VALUE:£3.7bn
TOUCH:995-996p12-MONTH HIGH:1,140pLOW: 895p
DIVIDEND YIELD:3.2%PE RATIO:13
NET ASSET VALUE:720¢*NET DEBT:60%

Half-year to 30 JunTurnover (€bn)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)
20133.3422935.39.55
20143.1531248.613.23
% change-6+36+38+39

Ex-div: 20 Aug

Payment: 16 Sep

*Includes intangible assets of €670m, or 182¢ a share

£1=€1.25