WHY SAN­LAM LIKES MONDI

Finweek English Edition - - IN THE NEWS - BY LAZAR NAIKER, EQ­UITY AN­A­LYST AT SAN­LAM IN­VEST­MENTS

Mondi is a lead­ing pack­ag­ing and pa­per pro­ducer that has op­er­a­tions fo­cused on Europe, as well as ex­po­sure to Rus­sia, South Africa and North Amer­ica. Mondi benefits from high­qual­ity, low- cost as­sets, ver­ti­cal in­te­gra­tion into pa­per pulp and from en­ergy-gen­er­at­ing ca­pac­ity.

WHAT WE LIKE

Mondi has i nvested cap­i­tal and ra­tio­nalised its busi­ness in re­cent ye ar s . Th e gr o u p ha s be e n suc­cess­ful in shift­ing its ge­o­graph­i­cal and prod­uct mix. In­creas­ing ex­po­sure to emerg­ing mar­ket s an d co n s u mers , a s op­posed to industrial pack­ag­ing, has re­sulted in im­prov­ing mar­gins and re­turns. Th­ese pos­i­tive trends have been de­spite a rel­a­tively ad­verse macro- en­vi­ron­ment and po­si­tion the group well for any mean­ing­ful im­prove­ment, par­tic­u­larly in Europe.

Cap­i­tal al­lo­ca­tion has been a key suc­cess of the group. Over the past t wo years, Mondi has i nvested € 350m (R4.6bn) in projects with re­turns in ex­cess of 40%. A large por­tion of th­ese projects has been f ocused on cost op­ti­mi­sa­tion. Fur­ther, spend of €420m (R5.5bn) over the fol­low­ing two years i s ex­pected to yield re­turns in ex­cess of 20%. The ac­qui­si­tion of Nor­de­nia in 2012 has been slower to de­liver on ex­pected re­turns given a weak global con­sumer, how­ever, this busi­ness does ap­pear to be turn­ing a cor­ner and pro­vides a good base for Mondi to de­liver high-value, spe­cialised con­sumer pack­ag­ing prod­ucts.

RISKS TO OUR VIEW

While Mondi ’ s key grades are rel­a­tively well bal­anced from a sup­ply and de­mand per­spec­tive, chal­lenges in the graphic pa­per mar­kets could see com­peti­tors con­vert c apacit y t o pro­duce pack­ag­ing i n the medium term. That said, if th­ese con­ver­sions were to take place they would take some time to de­liver (two to three years from an­nounce­ment) and Mondi will re­tain its low-cost po­si­tion.

In the short term, ex­po­sure to Rus­sia could neg­a­tively i mpact Mondi if de­mand i n that re­gion de­clines, although this is to a cer­tain ex­tent mit­i­gated by ru­ble weak­ness.

THE BOT­TOM LINE

While the stock has per­formed well, up around 32% since the start of the year, we be­lieve that high­qual­ity man­age­ment, al­lo­ca­tion of cap­i­tal into high- re­turn projects and growth from a solid base of op­er­a­tions po­si­tions the group well.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.