Mondi shares rally on ‘resilient’ performance amid COVID challenges

Mondi shares rally on ‘resilient’ performance amid COVID challenges

FTSE 100 listed packaging and paper company Mondi plc (LON:MNDI) saw its shares tick higher on Thursday, even as its half-year fundamentals lagged behind the performance of the previous year.

Likely already pricing in lower paper and pulp prices, as well as COVID challenges, today’s optimistic response to the company’s results is likely led by a feeling that things could have been worse.

The group’s half-year revenues dipped by over €300 million year-on-year, down from €3.77 billion, to €3.45 billion for the half-year period. Similarly, its underlying EBITDA fell from €894 million to €738 million, while its underlying operating profit and profit before tax dropped by €155 million and €166 million, to €524 million and €466 million respectively.

The overview was equally conservative for Mondi shareholders, with first half basic underlying EPS narrowing year-on-year from 96.2 to 73.0 EUR cents, while its interim dividend payments were cut from 27.28 cents, to 19.00 cents per share.

Regarding its rates of return and cash from investments, Mondi stated that its cash from operations was down from €737 million at 30 June 2019 and €898 at December 31, to €602 at 30 June 2020. Similarly, its underlying EBITDA margin contracted from 23.7% to 21.3% on-year, while its Return on Capital Invested fell from 23.2% to 17.1%.

Mondi response

Commenting on the results, and taking note of both the group’s resilience during COVID trading, as well as its ability to reinstate its dividend, CEO Andrew King said:

“Sustainable packaging continues to be a long-term priority for our customers and wider society. As a leading producer of both paper and flexible plastic-based packaging, we are in a unique position to support our customers’ environmental goals with packaging that is sustainable by design adhering to our principle of paper where possible, plastic when useful.”

[…]

“Going into the second half of 2020, heightened macro-economic uncertainties remain. Pricing across our key pulp and paper grades is below or in line with the average of the first half. Demand for packaging daily essentials remains robust while we continue to see weakness in certain industrial end-uses. Uncoated fine paper order books have picked up from the lows seen in the second quarter, albeit we do not expect a near-term recovery to pre-pandemic levels. We have rescheduled planned mill maintenance shuts which will have an impact on the second half of the year.”

“We are confident that the Group will continue to demonstrate its resilience in the event of a prolonged macro-economic downturn, while remaining well-positioned when the recovery takes place. This is underpinned by the Group’s integrated high-quality, cost-advantaged asset base, culture of continuous improvement, portfolio of sustainable packaging solutions and the strategic flexibility offered by our strong cash generation and financial position.”

Investor insights

Following the news, the Mondi shares rallied 1.65% or 23.50p, to 1,448.50p per share 06/08/20 12:28 BST. This is comfortably below its consensus 12-month target price of 1657.10, set by 13 analysts, with today’s price also representing a 6.66% year-on-year dip.

The company’s p/e ratio is 9.21, its dividend yield currently stands at 1.71%.