Mondi upgraded to overweight from neutral

JPMORGAN analyst Ross Krige on Friday recommended the upgrade of Mondi from neutral to overweight.

Krige also lifted the price target to 2 070 pence (R334.24) from 1 600 pence for the paper and packaging company which is also listed on the London Stock Exchange and the JSE.

In London Mondi was trading around 1 856 pence on Friday afternoon.

But in Johannesburg, the change in status failed to lift Mondi on Friday, with the shares dropping 0.38 percent to close at R300.70.

And industry analysts lowered their consensus oneyear target price for the stock by 1.6 percent in the past week, with forecasts ranging from 1 500 pence to 2 025 pence.

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The analysts estimated that Mondi would have sales of £3.3 billion (R53.28bn) and earnings per share of 61 pence in the next quarterly report.

Sasha Naryshkine, an analyst at Vestact, said the upgrade by the analysts meant nothing for the company as it continued with its operations on a daily basis.

“The upgrade to overweight means nothing for the company. It will continue to operate independently from the analyst community. Remember that investors worry about valuations on share prices specifically, relative to the company prospects.

“So from that perspective, it matters only to those who care about the short-term price movements,” said Naryshkine.

JPMorgan said it expected the tightening in Mondi’s key markets and rising old corrugate container/pulp input costs from which Mondi derived net benefit, as a mostly integrated producer to support price hikes from the second quarter.

It said this would drive upgrades of around 6 percent to its financial year 2017 earnings per share forecasts and 3 percent to financial year 2018 estimates.

The group pointed out that Mondi’s key markets were tightening on the back of strong demand, limited nearterm capacity additions and lack of spare capacity in the US (a major exporter into Europe), assisted by rising input costs.

“Moreover, we expect Mondi’s balance sheet to continue to offer optionality in the form of further merger and acquisitions (M&A) or cash returns, given low levels of leverage,” the bank said.

Adrian Saville, the chief strategist at Citadel, said Mondi as a business had been doing exceptionally well.

“Mondi has indeed distinguished itself by way of its footprint in faster growing, industrialising emerging markets, in particular eastern Europe, giving it access to skills and technology in lower-cost geographies,” Saville said.

He added that this had translated into a competitive strength in terms of lower cost and higher productivity compared to its peers. – Additional reporting by Bloomberg