Amelia Morgenrood.
JOHANNESBURG - Mondi will release its interim results this Friday. Bloomberg estimates expect revenue to increase by 6.7percent, and adjusted earnings per share to grow by 12.6percent, and a dividend of 0.72 per share.

Mondi is a well-known international packaging and paper group, employing around 25 000 people across more than 30 countries.

Its principal operations are located in central Europe, Russia, North America and South Africa; and they manage 2.4million hectares of forests.

The company offers over 100 packaging and paper products, customised into more than 100000 different solutions for their customers.

As a percentage of revenue South Africa contributes only 8.9percent.

At a glance

Paper and packaging contributes 29percent of income. Fibre packaging is 26percent. Consumer packaging represents 21percent. The uncoated fine paper division contributes 24percent.

They have a leading market position in various paper segments. They are the number one producer of kraft paper, industrial bags, uncoated fine paper, container board and commercial release liner. They are number two in extrusion coatings and virgin container board.

Trading update

Management has provided the following guidance:

* Stable like-for-like sales volumes.

* Higher average selling prices and profit improvement initiatives to offset higher operating costs, the impact of maintenance shuts and adverse currency effects.

* Strong cash generation from operating activities more than offset the cash outflow related to the capital expenditure programme.

* The group continues to experience a healthy pricing environment across several significant product segments driven by decent growth.

The group maintains a target for the dividend of two to three times the underlying earnings on average, over the business cycle. Underlying operating profit is up 15percent on the prior year and up 6percent sequentially. They are making good progress on previously announced significant capital investment projects in the Czech Republic, Slovakian and Russian mills and smaller expansionary projects at a number of their packaging operations. Technical challenges remain in the ramp-up of the rebuilt paper and inline coating machine at ttí in the Czech Republic.

Investment case

Mondi has been growing their underlying operating profit and margin consistently over the past five years. Their operating margin was 10.8percent in 2013, and by 2017 it increased to 14.3percent. Over the same period, the earnings per share grew on average by 12percent per year, all in euro terms.

In their May roadshow management said their outlook for the business remains positive. “We continue to experience a strong pricing environment in a number of our key product segments, supported by good demand growth, although we do continue to see inflationary cost pressures across the group and currencies are currently a headwind.

“With our robust business model, clear customer focus and culture of driving performance, we remain confident of sustaining our track record of delivering value accretive growth”.

The critical global industry trends are for packaging to be light-weight, convenient, rigid to flexibles and recyclable. Mondi is well positioned to leverage these global industry growth trends.

In the current environment of a weaker rand Mondi is an attractive defensive stock with all their business units performing well. The business is well-diversified across many geographies, and the management team impresses. They have a culture of continuous improvement in all elements of their value chain. Demand for their products remains strong, and there seems to be enough room for growth.

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity.

The views expressed here are not necessarily those of Independent Media.

- BUSINESS REPORT