Online shopping habits not enough for Mondi

The sweeping themes of pandemic life – spending habits changing, shopping moving online where possible – have not been enough to prop up packaging company Mondi’s (MONDI) profits. But consumers’ ambition to cut down on waste at the same time as creating more demand for plastic and paper products could be a positive rather than a challenge, Mondi says. It makes both paper and plastic products.

The difficulties in the three months to 30 September were weak pricing for its products and unfavourable currency shifts. Mondi said demand for its corrugated cardboard had been boosted from e-commerce, and it was starting discussions on putting prices up. Its industrially-exposed division did not do so well, however, as it was hit by the tougher pandemic trading conditions. 

In the September quarter, its underlying cash profit was down 20 per cent on last year, to €306m (£277m). The cash profit was also down 13 per cent on the June quarter.  

Chief executive Andrew King picked up another current demand theme, saying “sustainable” packaging had become a greater focus for customers. Mondi makes both plastic and paper products, and has said it was trying to use paper wherever possible. 

The company said its uncoated fine paper division, which supplies offices and schools, had done better in the September quarter as lockdown restrictions eased in Europe, Russia and Southern Africa. 

The profit pressures are not only external. Mondi has estimated that plant work across the company will cost it around €100m in cash profits for 2020 overall, with the majority coming in the December quarter. Its first-half underlying cash profit was €738m. 

Mondi has held onto its dividend and is still forecast to keep earnings within shouting distance of last year (FactSet consensus forecast is a 24 per cent drop in earnings per share in 2020). If it can up prices and keep waste-conscious buyers onside, it will get back to growth soon enough. Buy.

Last IC View: Buy, 1,449p, 6 Aug 2020