Lower prices and soft demand hit Mondi
Paper and packaging group’s earnings dive 18% in the three months to end-September
The lower average prices and reduced demand for its products that Mondi experienced in the three months to end-September are likely to spill into the fourth quarter, analysts said on Thursday.
Mondi manufactures and sells packaging and paper products to customers in the UK, SA and Austria. In the three months, Mondi’s like-for-like sales volumes were, on average, marginally lower than the comparable period in the prior year. The paper and packaging group attributed the fall in volumes to lower industrial bags and uncoated fine paper volumes.
This fall was partly offset by growth in corrugated packaging, it said.
Mondi’s share price fell to its lowest in almost three years on Thursday morning, after it warned that reduced paper demand and lower prices had hit its third-quarter revenue.
The stock was down 3.59% at R276.34, a level last seen in January 2017 but rebounded to close 1.81% higher at R291.80.
Dirk van Vlaanderen, an associate portfolio manager at Kagiso Asset Management, said in the fourth quarter he expected Mondi’s average prices across its paper grades to be marginally below the level seen in the third quarter and that the lower volumes in its industrial bags division “are likely to persist into the fourth quarter”.
Van Vlaanderen said the company could experience moderate growth in the container board and speciality kraft paper businesses as e-commerce and the shift from plastic to paper packaging provides some volume support.
Mish-al Emeran, an equity analyst at Electus Fund Managers, said the unfavourable trends could continue in the fourth quarter “as risk of soft demand is compounded by uncertainty around trade wars, which has persisted. Relative to benchmark prices Mondi’s prices have held up relatively well, which I think can be attributed to Mondi’s contracted volumes.”
However, he said Mondi’s realised prices could see downside pressure as contracts were renegotiated in a lower price environment.
Emeran said historically Mondi management had done a good job of extracting cost efficiencies “and indications are that further costs efficiencies will offset pricing pressure into the fourth quarter”.
Mondi has “always managed to realise ongoing efficiency savings and these are likely to amount to a further €45m benefit for the year, to help offset the softer pricing and volume environment”.
Mondi’s earnings before interest, taxation, depreciation and amortisation (ebitda) had fallen 18% to €383m in the three months to September 30, the company said, adding that prices had fallen further in its fourth quarter.
It said demand for its products remained soft across its various markets and prices for paper grades were below those of the first half.