• Strong performance with underlying EBITDA up 55% y/y but down 7% q/q (Q3 21A: EUR 290mn) to EUR 450mn (CRe: EUR 500mn): This was driven by higher prices and overall volume growth more than offsetting significant cost pressures. Impact of planned maintenance was c. EUR 30mn (Q3 21A: EUR 30mn).
  • Russia approvals remain outstanding (Q3 22A: PAT EUR 104mn & EBITDA EUR 129mn): The disposal remains conditional on the approval of the Russian Federation’s Government Sub-Commission for the Control of Foreign Investments and customary antitrust approvals. Given the proposed transaction is classified a class 1 transaction, a shareholder meeting will be called first, then the proceeds would be distributed as a special dividend.
  • Corrugated Packaging (40% of H1 22A EBITDA) continues to benefit from higher selling prices (y/y): Containerboard demand has held up well; however, similar to DS Smith, Corrugated Solutions box volumes were lower on the back of softer demand vs. strong volume growth last year (H1 22A: +6% y/y & -10% h/h). There was a meaningful reduction in industry testliner capacity in the ST due to high costs. With energy prices moderating, proposed industry testliner price increases have dissipated.
  • Flexible Packaging (44% of H1 22A EBITDA) had a strong quarter with demand across most end uses resilient: Mondi successfully implemented price increases across their range of kraft papers and packaging products (RISI European unbleached sack kraft prices: +EUR 200/t in July). Q4 remains a seasonally weaker quarter for bags due to the seasonal slowdown in the construction industry.
  • UFP business (18% of H1 22A EBITDA) continues to benefit from higher prices (Q3 22A: +52% y/y and +8% q/q): UFP volumes were still in the red (H1 22A: -11% y/y & -6% h/h), while pulp volumes increased. Mondi took “modest” downtime in Slovakia and Austria (non-integrated) to balance high wood costs vs. availability. The non-cash forestry fair value gain was c.EUR 30-35mn in Q3 (Q2 22A: EUR 20mn) and is likely to be similar in Q4.
  • Input costs “significantly” higher (y/y and q/q), largely driven by wood (H1 22A +40% h/h) and energy costs: Wood supply in central Europe remains tight, with hardwood being used as an alternative energy source. Energy costs were in part mitigated as most of Mondi’s energy needs are sourced from biomass fuels (80%) and only 10% from natural gas.
  • EUR 1bn expansionary capital investment programme is progressing: FID approved for a new 210ktpa sack kraft paper machine at their Štêti mill for EUR 400mn (start-up FY 25E and full production ramp-up FY 27E). Duino mill acquisition and conversion (testliner: 420ktpa to start-up in FY 25E) is expected to cost EUR 240mn, with the deal expected to be concluded in Q4 22E.
  • Heading into Q4, cost pressures are being somewhat alleviated by energy and OCC, while wood costs continue to rise: Energy costs for the full year are expected to be EUR 950mn.  The impact from planned shuts remains at EUR 100mn for FY 22E, with EUR 30mn impact expected in Q4 22E (Q4 21A:  EUR 70mn). EBITDA contribution from new projects is expected to be just under EUR 60mn in FY 22E (due to ST wood constraints) and c. EUR 50mn in FY 23E. We estimate Q4 22E EBITDA of EUR 469mn (FY 22E: EUR 1,861mn) and FY underlying EPS of EUR 1.93/share. We remain OVERWEIGHT with a PT of ZAR 345/share (GBP 17.07).

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