Our opinion on the current state of MNP

Oct 20, 2023

Mondi (MNP) is a massive international paper and packaging company that started in South Africa, but now has interests in 30 countries and employs 26000 people at about 100 sites. It has businesses in the full spectrum of packaging, and it is extremely professionally managed. It owns and runs forests, produces wood pulp, paper, and plastic films for the production of a wide variety of packaging solutions. The company has been impacted by developments in the Ukraine crisis. In an update on 28th February 2022 the company said, "Mondi has operations in Russia, representing around 12% of the Group's revenue by location of production, including a high margin, cost-competitive, integrated pulp, packaging paper and uncoated fine paper mill located in Syktyvkar (Komi Republic)". The company has decided to divest itself of all its Russian holdings which had a net asset value (NAV) of 687m euros at 31st December 2021. On 1st July 2022 the company announced that it had completed the sale of personal care business for 615m euros. On 12th August 2022 the company announced that it had sold its Russian subsidiary for about R25bn. The announcement caused the share price to jump. In its results for the six months to 30th June 2023 the company reported group revenue down 14% and earnings per share (EPS) down 32%. The company said, "Mondi's performance in the first half of 2023 reflects a strong delivery against a backdrop of challenging market conditions. Whilst underlying EBITDA was lower, the business exhibited its strong cash generative characteristics, improving cash generation". In an update on the 3 months to 30th September 2023 the company reported, "Market demand has remained soft with lower average selling prices largely mitigated by lower input costs and tight fixed cost control. A much- reduced forestry fair value gain resulted in a lower underlying EBITDA of €261 million when compared to Q2 2023". In our opinion, this is an excellent blue-chip company which looks cheap on a price:earnings multiple (P:E) of 6,9, however there may be further downward potential because of the Ukraine crisis. Technically, the share was in a strong upward trend since March 2020 which has then derailed by the Ukraine situation in March 2022. Since then it has been moving sideways. We expect that the upward trend will continue as the world-wide switch to online shopping requires more packaging materials and as and when the Ukraine crisis is finally settled.