Russian exposure knocks Mondi's prospects

Packaging giant Mondi (MNDI) beat earnings expectations in 2021 as it passed on price hikes to customers and kept looking for growth options amid continued strong conditions for the sector.

A fifth of the company’s cash profits come from its plant in Russia, however, so repeating this performance in 2022 may prove tricky as conditions deteriorate in the sanctions-hit country. Mondi said it was “actively monitoring the situation”. This plant largely serves the Russian market. 

The company’s 2021 underlying operating profit was €1.1bn (£909mn), up 15 per cent from last year, driven by the still-strong ecommerce sector. The final dividend will be a slight increase on last year, at 65¢ a share compared with 60¢. This was below consensus estimates of 68¢, although Mondi outpaced earnings per share expectations of 143¢ by 9 per cent. 

Chief executive Andrew King said “significant geopolitical and macroeconomic uncertainties” and inflationary pressures made this year’s performance tough to predict, but that recent price increases and lower maintenance spending would bolster the bottom line. 

Maintenance spending hit 2021 performance hard. Mondi put the impact of planned and unplanned works on underlying Ebitda at €165mn, or 10 per cent, compared with €100mn in 2020. This will come back down in 2022, the company said.

Capital spending could balance that improvement out, however: management is close to giving the green light for a €350mn new kraft paper machine. 

Consensus estimates compiled by FactSet put 2022 adjusted earnings per share at 174¢, a 13 per cent jump on 2021. 

The question for this year is whether global packaging demand growth will outweigh a possible sales drop in Russia, where consumers are seeing very high inflation given the depreciation of the rouble. While not certain yet, we shift to neutral out of pessimism about the chances of a quick resolution to the war. Hold. 

Last IC View: Buy, 2,056p, 5 Aug 2021