Mondi packages up decent return

A doubling of profits at packaging group Mondi (MNDI) on the back of strong top-line growth was met with a sell-off in its shares as investors took more notice of what the company said about a more bearish economic outlook.

Mondi’s operating profit jumped by 114 per cent to €1.69bn (£1.49bn) against 2021 numbers that were restated to strip out the contribution from its discontinued Russian operations. 

The company posted healthy numbers across the board. Cash from continuing operations rose by 29 per cent to €1.29bn and net debt was cut by almost €700mn to €1bn. Discounting its Russian operations (for which sales have been agreed, but not completed), return on capital jumped to 23.7 per cent, from 13.9 per cent a year earlier. 

Mondi said it was able to outpace “materially” higher input costs through price rises and is less exposed to higher gas prices than many energy-intensive businesses, given that its pulp and paper mills are powered by “internally generated” biomass sources. Only 10 per cent of its fuel is sourced from gas.

Yet its warning that both demand and pricing is currently falling as customers run down stocks spooked investors, with the shares falling by around 5 per cent, wiping out year-to-date gains. Moreover, it isn’t slowing down on spending, as the recent €40mn purchase of the Duino mill in Trieste shows. It plans to pump €200mn into the site to allow it to produce recycled containerboard, which will supply plants in its Corrugated Solutions business in central Europe and Turkey.

Broker sentiment, although still mainly positive, is also turning more bearish and at 11 times forecast earnings its shares are valued largely in line with peers and its own five-year average. Hold.

Last IC View: Hold, 1,492p, 04 Aug 2022