Join our community of smart investors

Mondi caters to shifting consumer demands

Regulatory change and efficient cost pass-through are driving the packager's near-term performance
August 6, 2018

The fight against plastic certainly isn’t doing Mondi (MNDI) any harm. Against an unfavourable backdrop of high raw material costs and a depreciating US dollar and Russian rouble, the paper and packaging specialist delivered underlying operating profit growth of 25 per cent to €630m (£561m) – a figure that breezed past analysts' forecasts.

IC TIP: Hold at 2,206p

Packaging paper led the way. Divisional cash profits surged 43 per cent to €430m as Mondi capitalised on an industry-wide drive to replace plastic carrier bags with durable paper-based solutions by hiking selling prices. In light of this success, management now plans to raise prices of Kraftliner, known for its high elasticity and tear resistance, by €40/tonne. Elsewhere, another structural driver – the rise of online retail – ensured that the group’s corrugated packaging operations were also able to charge more to offset higher input costs and negative currency effects. Management now hopes that similar demand for its flexible packaging solutions – which typically use 70 per cent less plastic than rigid-based alternatives – can lift its underperforming consumer packaging segment.

Citi forecasts adjusted pre-tax profit of €1.09bn for the December year-end, giving EPS of 169¢, up from €948m and 139¢ in 2017.

MONDI (MNDI)   
ORD PRICE:2,206pMARKET VALUE:£10.71bn
TOUCH:2,206-2,207p12-MONTH HIGH:2,216pLOW: 1,611p
DIVIDEND YIELD:2.6%PE RATIO:18
NET ASSET VALUE:657¢*NET DEBT:70%
Half-year to 30 JuneTurnover (€bn)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)
2017 (restated)3.5846172.119.1
20183.7349072.521.5
% change+4+6+1+12
Ex-div:23 Aug   
Payment:14 Sep   
*Includes intangible assets of €1.03bn, or 213¢ a share. £1=€1.123. NB: Market value includes Johannesburg-listed shares