- Mondi is set to sell its Personal Care Components (PCC) business to Nitto Denki Corporation (6988 JP Equity): The disposal includes four companies, Mondi Gronau, Mondi Ascania GmbH, Mondi China Film Technology Co. Ltd and a newly established company for the PCC (currently held by Mondi Jackson LLC in the US). The deal is set to close in H2 22E with an EV of EUR 615mn (expected proceeds). Based on its EBITDA contribution in FY 20A, this implies a punchy 15x EV/EBITDA (Nitto Denki’s 1-yr rolled forward EV/EBITDA: 7.5x).
- PCC is part of MNP’s Engineered Materials segment: It manufactures a range of components for personal and home care products, such as diapers, feminine care, adult incontinence, and wipes. In FY 20A, PCC contributed EUR 42mn of EBITDA, equating to c.50% of the Engineered Material’s EBITDA and 3% of EBITDA at a Group level.
- Remaining portion of Engineered Materials (Functional Papers & Films) to merge into Flexible Packaging: According to MNP, this should strengthen integration along the kraft paper value chain and foster innovation to continue developing functional papers with the necessary barriers to meet increasing customer demand for sustainable packaging.
- Impact on MNP’s financials in FY 22E: Following the disposal, our group underlying EBITDA and EPS would be reduced by c.2-3% to EUR 1,785mn and EUR 1.95/share, respectively. We estimate that MNP’s annual CapEx would be at least EUR 20mn lower p.a. Encouragingly, our net debt would decline by 38% to <EUR 1bn, with net debt/EBITDA of 0.5x (current estimate: 0.8x).
- Background on Mondi Gronau GmbH: Mondi Gronau, previously acquired as part (substantial) of the Nordenia acquisition in 2012. In 2011, Nordenia generated EUR 881mn in revenue and EUR 99mn in EBITDA, with an EBITDA margin of 11.2% (EBIT margin: 7.9%). The business was acquired for EUR 240mn, with an additional EUR 398mn in debt assumed (total EV: EUR 638mn). This equated to a 6.6x EV/EBITDA or 9.3x EV/EBIT. The business was guided to generate a ROCE in excess of MNP’s through-the-cycle target of 13% by 2014 (inclusive of synergies if EUR 15mn). This did not materialise, and subsequently, the Engineered Material’s segment has lagged Group ROCE.
- Background on Mondi Ascania: Ascania is a producer of nonwoven fabrics and nonwoven composites used as components in personal care products and operates in Germany. Ascania was originally acquired by Mondi in 2015 for EUR 54mn, with an implied EV/EBITDA of 5.7x (2015: Revenue EUR 53mn; EBITDA: 9.5mn; EBITDA margin: 17.9%; Employee #s: 150). The intention of the deal was to support the development of MNP’s Consumer Packaging business.
- Bottom line: Undoubtedly, the disposal will simplify MNP’s portfolio, and allow them to focus on their core packaging and paper businesses. ROIC will improve and further debt reduction will pave the way for further organic expansion, potential M&A and special dividends. Maintain OVERWEIGHT recommendation.
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