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Mondi's valuation depends on 'pass-through' ability

The dual-listed packaging group is now faced with rising input costs, but how will it cope?
October 11, 2017

Mondi’s (MNDI) shares slumped after the paper and packaging group revealed that underlying performance for the financial year would be "modestly" below market expectations. The group was assailed on several fronts during the third quarter, with fixed costs bubbling up due to maintenance shutdowns and rising costs for wood, energy and chemicals, while benchmark paper for recycling prices were up 15 per cent compared to the third quarter of 2016. This was compounded by negative currency effects on the back of a depreciating greenback, Turkish lira and Russian rouble. It’s difficult to imagine a hedging strategy that would have mitigated that brew.

IC TIP: Hold at 1,921p

However, both like-for-like trading volumes and improved pricing provide cause for optimism across the group’s businesses. The performance of consumer packaging has been held in check by overcapacity, mirrored in slowing top-line growth in certain value-added products. But management certainly hasn’t shirked on any remedial measure; hacking away at fixed costs through a rationalisation programme in the UK and the closure of a production facility in Poland. Any resultant cost benefits will take time to filter through, though, not least because a special item/impairment charge estimated at €45m (£40m) will be recognised in the full-year figures.