Higher prices for Mondi’s products underpin a positive outlook for the international packaging, paper and pulp manufacturer after it reported a “robust performance” in the first half of 2017, say industry analysts.
Revenue rose 8% to €3.6bn in the six months from the same period in 2016. But underlying operating profit of €497m came off €32m. This was mainly driven by a substantially lower forestry fair-value gain in SA and also the effects of shutting down mills for maintenance.
However, return on capital employed stayed strong at 18.7%. Cash generated from operations of €592m, down from €620m in the quarter in 2016, included an increase in working capital.
Justin Jordan, an equities researcher at Jefferies International in London, rated the stock as a “buy” on confidence in volume growth and also pricing growth into 2018. “These price increases reflect improving pan-European demand, with no new virgin containerboard capacity additions.”
Peter Oswald, Mondi’s new group CEO, said on Thursday that the acquisitive company would continue to drive growth through its capital investment programme, including continuing development of its packaging mill in Swiecie, Poland.
He said that good progress was being made with the modernisation of Mondi’s kraft-paper facility in Steti in the Czech Republic.
The group said integration of acquisitions completed during calendar 2016 and early 2017 was on track. These had boosted geographic reach and the product portfolio in corrugated packaging and consumer packaging.
“Mondi has delivered very good earnings growth since the depths of the global financial crisis in 2009, despite very unsupportive underlying market conditions, particularly paper prices,” said Dirk van Vlaanderen, associate portfolio manager at Kagiso Asset Management. “Mondi’s success is down to excellent cost control and constant reinvestment into its capital base to become more efficient and further improve operating margins,” he said.
“European paper prices are finally showing some good momentum in 2017 and we believe this should have a positive impact on profit growth in the next two years.”
The new CEO had continued Mondi’s focus on reinvestment, with several large capital projects coming on stream in 2019 and beyond, Van Vlaanderen said.
“We therefore expect a reacceleration of earnings growth from Mondi in the coming years with the possibility of higher cash returns to shareholders, given Mondi’s current conservative balance sheet position,” he said.
Oswald said that the market outlook remained broadly positive. “We saw strong demand across packaging paper and corrugated packaging in the first half and successfully implemented price increases across certain paper grades, the full effect of which is anticipated in the second-half.”
The second half of the year will see planned maintenance shutdowns at a number of Mondi’s mills and the usual seasonal downturn in uncoated fine paper, amid some inflationary cost pressures.
Packaging accounted for 75% of revenues and about 70% of the group’s profitability, Oswald said. Currency movements had a small net negative effect on underlying operating profit compared with the same period in 2016.