Mark du Toit from Oyster Catcher Investments said Mondi is well positioned in the current European energy crisis, opening up opportunities for future growth.
Mondi is a global packaging and paper company which operates in Europe, North America and Africa.
The group employs 21,000 people and has 100 production sites across 30 countries.
Mondi has four operating segments:
- Corrugated packaging – the production of containerboards used in regular and customised corrugated packaging. It generates 2,510 million euros at an EBITDA margin of 26.7%.
- Flexible packaging – the production of kraft papers, the main materials used in strong paper-based packaging. It generates 2,889 million euros at an EBITDA margin of 18.2%.
- Engineered materials – the production of protective surfaces for papers and personal care components. It generated 879 million euros at an EBITDA margin of 8.1% but was disposed of by Mondi.
- Uncoated Fine Paper – managing forests in South Africa and Russia used to produce printing papers. It generates 1,652 million euros at an EBITDA margin of 16.3%.
Du Toit said the current energy crisis in Europe would not affect Mondi as severely as some of its competitors as they produce their own energy.
Mondi said the company generated 99% of its own 2021 required manufacturing energy. 4,452 Terajoules of energy were sold in the form of steam, and 4,176 Terajoules of energy were sold back to the public electricity grid.
The company generates 65% of its energy from biomass, of which 84% is from by-products generated in the pulp production process.
Du Toit believes it positions Mondi well to allocate excess capital and expand its operations.
Mondi announced that it would be disposing of its main Russian production facility Mondi Syktyvkar due to the Ukraine conflict.
It has a potential buyer of the facility at a consideration of 1.5 billion euros. The disposal is still subject to conditions.
If the deal is approved, a 255 million euro cash reserve and the net proceeds from the disposal will be paid out to shareholders as a special dividend. It is another reason why Mondi is attractive.
Mondi has shown variable revenue generation but has made a meaningful recovery since 2020.
The group has disposed of its personal care component (PCC), which has not shown strong financial performance.
Mondi said this segment did not form part of its core operations and offered little synergistic advantages.
The PCC operations formed part of the group’s smallest operating segment and accounted for only 42 million euros of the group’s total 1.5 billion euro EBITDA.
The disposal of its Russian operations may significantly impact the group’s revenue, accounting for 11% of the group’s net operating assets and 12% of the total revenue.
Mondi trades at a very low price-to-earnings (P/E) ratio relative to its historical levels. Investors may, therefore, have an opportunity to access value at a low price.