Weak Management Outlook Dampens Mondi Plc’s Decent H1FY19 Numbers

Weak Management Outlook Dampens Mondi Plc’s Decent H1FY19 Numbers

Mondi PLC (MNDI) is an Addlestone, United Kingdom-based multinational packaging and paper company. The company operates in central Europe, North America, South Africa and Russia. Recycled containerboards, speciality kraft papers, corrugated packaging products, industrial bags, films and hygiene components, consumer goods packaging products, printed laminates and high-barrier films for the consumer industry are the products offered by the company. The company is having an employee base of around 26,000 and operations in over 30 countries worldwide with 100 production sites. On July-03-2007, shares of the Mondi Plc got listed on the main market of the London Stock Exchange for trading. Mondi Plc and Mondi Limited hold a dual listing structure and operate together as a single unit. The company is a key constituent of the FTSE 100 Index and FTSE 350 indices. Coronation Asset Management (Pty) Ltd., Public Investment Corporation (SOC) Ltd., Investec Asset Management (Pty) Ltd. AXA Investment Managers UK Ltd. and Norges Bank Investment Management are the major institutional investors in the group. (Source: TR)

On August 01, 2019, the company released its interim-financial results for the six months ended June 30, 2019. The company’s revenue for the period under review increased marginally and stood at €3,771mn against the revenue of €3,727mn recorded in the same period of the previous financial year. The higher average selling price of their Uncoated Fine Paper and Fibre Packaging led to the marginal growth in the top-line.

Underlying EBITDA for the H1FY19 was up by approximately 5% and stood at €894mn against the €852mn recorded in the first half of 2018. However, on a sequential-half year basis, the company’s performance declined slightly against €912mn of underlying EBITDA recorded in the second half of 2018. Underlying operating profit for the period under consideration, improved by 7.7% on a Y-o-Y basis and stood at €679mn. On a sequential-half year basis, the company’s performance narrowed slightly, as underlying operating profit for the H2FY18 stood at €688mn.

The decent performance at the EBITDA level was primarily driven by higher average selling price, the contribution from past acquisitions, capital investments and a higher forestry fair value gain, which was higher than impacts of lower volume in certain segments, higher costs and planned maintenance shutdowns.

The company recorded higher input costs against the year-ago period. Wood costs, chemical and energy bills were relatively higher than the year-ago period. The mill and maintenance shutdowns affected the group along with inflationary cost pressures and this led to an increase in cash fixed costs. Depreciation costs were comparatively lower in the first half of 2019.

However, profit before tax for the period under review improved significantly to €632mn from €490mn recorded in the year-ago period and €615mn recorded in the second half of 2018. Basic and underlying earnings per share for the first half of 2019 surged to 96.2 cents from 89.2 cents recorded in the year-ago period but were lower against the 99.9 cents recorded in the second half of 2018. Basic earnings per share on Y-o-Y basis improved by approximately 32% to 95.8 cents against 72.5 cents recorded in the year-ago period. However, on a sequential-quarter basis, the company’s performance declined in the H1FY19.

The board of the company declared an interim dividend of 27.28 per share, which was approximately 27% higher than the interim dividend announced for the first half of 2018.

Group’s net debt for the period under consideration reduced by approximately 3.7% and stood at €2,358mn against the €2,450mn recorded in the year-ago period, but on a sequential basis, net debt of the company increased by 6.2% from €2,220mn recorded in the second half of 2018.

Group’s underlying EBITDA margin improved marginally by 80bps on a Y-o-Y basis and stood at 23.7% but declined by 60bps from 24.3% recorded in the second half of 2018. Also, the company’s return on capital employed expanded by 190bps on a Y-o-Y basis and stood at 23.2% and was slightly lower against 23.6% recorded in the second half of 2018.

Cash Flows

Cash inflows from the operating activities during the period under consideration stood at €737mn, marginally above the cash inflows recorded in the same period of the corresponding financial year. Working capital of the group stood at 15% of the annualized revenue at the end of the first half of 2019 against 14.3% recorded in the corresponding period of the previous financial year. This reflects a seasonal rise in the H1FY19, which led to a net cash outflow of €104mn in the H1FY19 against €148mn recorded in the year-ago period.

Net cash outflows to fund ongoing major capex programme at the group stood at €339mn in the H1FY19 against the €347mn recorded in the year-ago period. This was primarily invested in the company’s property, plant and equipment and along with this €23mn invested in the forest assets compared to €28mn invested in the year-ago period.

However, in the interim statement filed with the exchange, the group mentioned that trading outlook for the company in the second half of the H2FY19 would continue to remain challenging. Also, demand is declining across the geographies where the company is operating, and prices of key paper grade products are presently lower than it was in the first half of 2018. The company is expecting a lower forestry fair value gain in the second half of 2019. Therefore, the bottom line is the company is bearish on its prospects in remainder of the 2019 trading period.

Changes in Board

In the stock exchange filing as of July-30-2019, the company announced that Fred Phaswana, currently acting as Joint Chair of the boards of the Mondi Plc and Mondi Limited, has shown his intention to retire from his current position post completion of the simplification of Mondi Plc’s corporate structure. He is expected to step down from his chair on August 31, 2019. Also, in the same exchange filing, the group has reported that Enoch Godongwana is being appointed as the new independent non-executive director of the Mondi Plc with effect from September 01, 2019.

Stock Performance

Daily price chart (as on August 05, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, 10:25 AM GMT), shares of MNDI were quoting at GBX 1580.0 and declined 49.50 points or 3% against the previous day’s closing price. The outstanding market capitalization of the group stood at £7.91bn, which ranks the group among the large-cap companies listed on the London Stock Exchange and a key constituent of the broader FTSE 100 index.

On a YoY basis, MNDI has delivered a negative return of 21.33% and plunged by approximately 10% in the past 5 trading sessions. In the year-ago period, shares of the company had registered a 52-week high of GBX 2,250 as on August-08-2018 and a 52w low of GBX 1,557.50 as on December-18-2018 respectively. At the current trading level, its shares were quoting approximately 29.7% below its 52-week high price level and marginally above the 52-week low price level, which indicates a downtrend in the stock. Also, the 14-day RSI of the stock is hovering in the steep oversold zone and in the past one year, the number of times the stock has gone into an oversold zone or touched an oversold zone is relatively higher than the number of times its shares have traded into an overbought zone or touched an overbought RSI threshold, which clearly indicates that the stock is in a downtrend.

At the current trading level, the stock is trading below its lower Bollinger Band® and far below its 20-day simple moving average prices, which indicates that some pull-back in the stock price could take place in the near-term.  However, one needs to consider other technical parameters as well.

At the current trading level, the stock is quoting considerably below its 30-days, 60-day and 200-day simple moving average prices, which is also considered a bearish technical measure.

From the volume standpoint, the 5-day average daily volume of the stock traded at the London Stock Exchange was considerably higher than its 30-day average daily volume traded, which, along with a plunge in price, indicates that sellers are pushing the stock price down.

The stock is having a latest beta of 1.4 , which reflects that the stock’s volatility is higher as compared to that of its benchmark index. Also, at the current trading level, the dividend yield of the stock stands at 4.61%, which is marginally above the dividend yield of the FTSE 100 index. However, a higher dividend is partially on account of a substantial fall in the stock price over the year-ago period.

Facebook Comments