E-commerce and global scale are strong points

Mondi is a true leader in the packaging and paper industry, making more than 100 products that can be customised into more than 100,000 solutions.

In the recent judging of the WorldStar Packaging Awards, Mondi products scooped eight awards. Its products range from shock-absorbent cardboard wineglass containers to fresh-produce trays and recyclable plastic laminate bags. Mondi has manufacturing facilities and product distribution in Africa, Europe, the US and Asia.

Globally, it is the market leader for kraft paper and industrial bags, as well as the European leader in virgin containerboard, commercial release liner and uncoated fine paper. This global scale translated into 2018 revenues coming in at €7.6bn, of which €4.1bn (54%) was from fibre packaging, which is things like container board, kraft paper and cardboard-based packaging, while €1.6bn (21%) was earned from consumer packaging — mostly plastic and paper/plastic derivative material packages, and €1.8bn (24%) from uncoated fine paper, the stuff you put in your printer.

From all this, the company generated an underlying operating profit of just over €1.3bn, giving it a 17.6% profit margin on its operations.

There is a strong focus on recycling and sustainability as it pushes toward a greener future. All wood mills are 100% self-sufficient in terms of electricity production and 64% of all fuel consumed at those mills is from biomass-based sources. Mondi is working hard to create new products from recycled materials.

One of the awards Mondi won was for a fully recyclable soft plastic laminate bag that

serves as a replacement for a hard plastic container, thus reducing the use of plastic.

Mondi has, as part of its acquisition spree, recently purchased a significant plantation in SA which will secure wood for future production requirements, though that is not the most exciting part of the equation. Mondi is a leading supplier of containerboard packaging in a world where online shopping is growing fast. As time goes by, e-commerce will expand and Mondi is set to be a global contender in the supply of packaging for online vendors.

At present, the company has a dual listed company structure which it plans to do away with. In a nutshell, it is split into two pieces, one being Mondi Ltd and the other being Mondi Plc. Within Mondi Ltd sits all the SA operations, while all the international operations are held in Mondi Plc. There are agreements to share revenues and costs between the two, though this structure has become a bit cumbersome. The company plans to consolidate the two parts into one, called Mondi Plc.

What this means, practically, is that every Mondi Ltd share- holder will receive one Mondi Plc share for each Mondi Ltd share they own and the Mondi Ltd share will be delisted. This will not affect voting rights or rights to dividends and it will make life a lot easier from a cash flow and dividend flow perspective for the company.

The primary listing will still be in London with a secondary inward listing on the Johannesburg Securities Exchange. It should not have any impact on Mondi’s inclusion in the Top 40 index locally and the FTSE 100 index in London. The plan is to implement this change during the second half of this year.

From a valuation perspective, Mondi is trading at about R330 a share with a price to earnings ratio of 11.05, a dividend yield of 3.6% and a debt to equity ratio of around 64%, which makes it a little on the expensive side for my taste.

But if you consider the increased earnings in the years to come, plus the prospect of an increasing demand for packaging from online shoppers, it could be a good longterm investment, not to mention a rand hedge.