- Mondi is set to report its H2 23e results on February 22nd: We anticipate a full-year EBITDA of €1,157mn, with a projected Q4 23e EBITDA of €209m (or €194mn excluding the forestry fair value gain). This performance is expected to drive underlying EPS to €1.05/share for the full year (H2 23E EPS: €0.38). The company is expected to maintain a stable year-on-year full-year DPS of at least €0.70 (final DPS at €0.47). Furthermore, we anticipate that Mondi’s balance sheet will strengthen further due to the €775mn inflow from the disposals of the Syktyvkar and three converting operations. This is expected to drive net debt down to €325mn, resulting in a net debt/EBITDA of 0.3x. Presentation at 11am (Webinar Registration).
- The special dividend and share consolidation were successfully approved at the general meeting held on January 15, 2024: The share consolidation occurred on January 29, and the special dividend payment was made on February 13. In our modelling, we have utilized 441.4mn shares from FY 24E onwards. It’s worth noting that our EPS estimates for FY 24e and FY 25e are ahead of consensus by 15% and 11%.
- Mondi has until the 7th of March to either announce a firm intention to make an offer for DS Smith or declare no intention to make an offer: However, this deadline can be extended. Mondi is currently in the preliminary stages of exploring a potential all-share combination with DS Smith. As of the end of January, DS Smith was trading at a 5.6x one-year forward EV/EBITDA, representing a 14% discount to its five-year average.
- In 2023, the containerboard markets faced challenges, but there’s optimism for improvement in 2024: Box demand has rebounded to pre-pandemic levels, stabilizing in the third and fourth quarters. European demand for kraftliner remained stable to slightly positive in Q4, indicating a moderation in demand weakness. Effective management of kraftliner stocks and production curtailments has kept inventories at an average level. Looking ahead to 2024, the market is expected to gradually improve, driven by stabilization, lower inflation, and interest rates, which are anticipated to positively impact consumer spending. However, there’s anticipation of additional testliner supply entering the market in the coming quarters, potentially adding pressure to the supply-demand balance. Although demand growth is returning, the industry operating rate remains low.
- Customer destocking for sack kraft has reached a significant milestone, with producers now targeting price increases of 8% effective March 1st: This suggests a positive outlook for 2024, as customer inventories are generally lower. Moreover, discussions for kraft paper price increases are also underway, with two producers confirming this initiative thus far.
- Demand for uncoated woodfree paper is showing signs of recovery, although announced price increases have not yet been realized: Statistics for Q4 23e revealed a 7% year-on-year decline in demand in Europe, but an 11% quarter-on-quarter improvement. However, despite this improvement in demand, prices for uncoated woodfree paper softened by 5% quarter-on-quarter and by 18% year-on-year. Nevertheless, current industry conditions indicate improvement, especially in Europe, where order books are strengthening, and imports of uncoated woodfree paper are low.
- We remain OVERWEIGHT: To value Mondi, we use the average target price derived from our free cash flow to firm (FCFF), P/E (x) and EV/EBITDA (x) valuations. On this basis, we set a one-year target price of R 369/share (+12%) and including a 4% 1-yr rolled dividend yield.
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