- Mondi to report FY 21E results this Thursday: We expect underlying EBITDA to increase by 7% y/y to EUR 1,444mn. This drives underlying EPS growth of 12% y/y to EUR 1.45/share and we expect a final DPS of EUR 0.46/share (FY DPS: EUR 0.66/share). Net debt/EBITDA likely to be flat y/y at 1.3x. Results presentation at 11am (tel #: 0800 014 552 | conference ID: 6106528).
- Since Russia invaded Ukraine on 24 February, Mondi’s share price has come under the most pressure vs. peers: Mondi -23% (LSE) & -21% (JSE); The Navigator Company -8%; Smurfit Kappa -11%; and DS Smith -10%. It is worth noting that Smurfit Kappa and DS Smith have negligible earnings exposure to Russia.
- What we know about Mondi’s Russian operations: Russia comprises c.13% of Mondi’s total net operating assets. External revenue by location of customer from Russia has been in the range of 9-10% of Group revenue, while external revenue by location of production has been in the range of 11-13% (implies 74-81% of revenue is domestic, with 19-26% exported). EBITDA from Russia is not disclosed; however, we estimate it comprises at least c.15% of Group EBITDA. In Russia, they operate the Syktyvkar mill, located in the Komi Republic, west of the Ural Mountains, which makes uncoated fine paper (32% of Group UWF capacity: 530ktpa), white top kraft liner containerboard (12% of Group containerboard capacity: 325ktpa), pulp (22% of Group pulp capacity: 1.05mtpa) and newsprint (100% of Group newsprint capacity: 205kpta). Syktyvkar’s core focus is the domestic market (Russia and CIS). Some of its production is exported to various countries around the world, including China, Turkey, and South Africa. The mill’s exports to EU are a small portion of sales. They also manage over 2.3bn Ha of forest. The Russian business is a high margin business given it’s an integrated, cost-competitive paper and packaging facility. They also have 3 plants in Russia (one corrugated packaging plant and two consumer flexibles plant). These plants serve the local market.
- What does the current Mondi share price imply: To date, from an operational perspective, Mondi has only temporally suspended production at an industrial bags plant in Lviv (west Ukraine). In our view, the share price reaction (down 21% since 24 February), implies the market has assumed no earnings contribution from Russia. On this basis, assuming a 15% reduction in our one year rolled EBITDA, this would decrease our FY 22E underlying EPS by 21% from EUR 2.01/share to EUR 1.59/share and increase our net debt/EBITDA from 0.8x to 1.1x (before the Personal Care Components disposal: PCC). Accordingly, our target price would be reduced by 18% to R 349/share, 13% higher than the CMP.
- Enough is enough it seems for select foreign firms such as BP and Shell who intend to exit their Russian exposure: Following Russia’s invasion of Georgia (2008), Russia seizing Crimea from Ukraine (2014), and Russia invading Ukraine in 2022, the RUB has weakened cumulatively by 71% since 2007 (this compares to a 50% weakening in the ZAR vs. the EUR). We await guidance from Mondi as to how they are assessing their Russian asset base.
- Following certain Russian banks excluded from SWIFT, the Rouble has weakened by 39% vs. the 2021 average: Rouble weakness will hurt earnings in FY 22E. All else equal, a 1% weakening in the RUB equates to a EUR 2.0-2.5mn reduction in EBITDA. We assume spot EUR/RUB holds for FY 22E and reduces Group EBITDA by EUR 97mn (EBIT reduction of EUR 78mn). This reduces our current FY 22E EBITDA estimate by 5% to EUR 1,728mn (before the PCC disposal) and reduces our underlying EPS by 6% to EUR 1.89/share. We remain OVERWEIGHT but reduce our TP by 6% to R 397/share.
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