Interactive Investor

ii view: Mondi aided by online boom and sustainability themes

7th October 2021 12:36

Keith Bowman from interactive investor

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Both paper and plastics businesses are an opportunity for this packaging maker. We assess prospects.  

Third-quarter trading update to 30 September 2021

  • Adjusted profit (EBITDA) up 27% to €388 million

ii round-up:

Mondi (LSE:MNDI), maker of both paper and flexible plastic-based packaging, today delivered a hike in third-quarter adjusted profit as it benefited from higher prices and strong demand. 

Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by 27% compared to the third quarter of 2020 to €388 million. 

Mondi shares rose by more than 2% in UK trading, leaving them up close to 55% since pandemic induced market lows in March 2020. Shares for bigger rival Smurfit Kappa (LSE:SKG) have almost doubled in that time, while FTSE 100 company DS Smith (LSE:SMDS) are up by around 45%. 

Mondi’s sustainable packaging solutions helped customers achieve their environmental goals, aiding year-over-year volume growth. 

On a product basis, demand for corrugated packaging proved strong across its customer base. Tight global markets allowed it to apply price rises across its containerboard portfolio. 

Volume growth for flexible packaging also proved strong, aided by demand from ecommerce, building and construction industries. Robust demand also allowed price increases across its range of kraft papers and paper bags.

Elsewhere, the performance of its engineered materials proved stable, while sales for its uncoated fine paper business continued to recover. 

Although accompanying outlook comments flagged an impact from recent cost increases and planned maintenance near-term, they also underlined confidence in Mondi's sustainable packaging solutions and integrated cost-advantages longer term. 

ii view:

Paper and flexible plastic-based packaging maker Mondi was separated out of miner Anglo American (LSE:AAL) in 2007. During its 2020 financial year, flexible and largely plastics-based packaging generated its biggest slice of sales at almost 40%; followed by corrugated or largely paper based packaging at almost 28%. Uncoated fine office paper makes up a further 21%, with engineered materials the balance.  

For investors, rising input costs such as energy for manufacturing and transport need to be remembered. So does ongoing pandemic uncertainty in many of its markets. But its combined plastics and paper businesses potentially offers an opportunity, as customers grapple with the environmental pros and cons of each, or a combination of the two. Demand for ecommerce and related packaging looks set to rise long term, and Mondi is working hard to develop more products from recycled plastic. An historic and forecast dividend yield of over 3% should also not be overlooked in a low interest rate era. For now, and given exposure to both environmental and ecommerce themes, Mondi looks to remain worthy of long-term investor support.  

Positives: 

  • Exposure to ecommerce and sustainability trends
  • Attractive dividend (not guaranteed)

Negatives:

  • Continued Covid uncertainty
  • Exposure to currency movements

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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