Mondi shares rose as much as 4% on Thursday, the most in four months, after the paper and packaging group painted a rosy outlook in the second half of the financial year, citing demand and rising prices for its product ranges.
With the world economy reopening amid the rollout of Covid-19 vaccines, the demand for paper products improved in the first half of the year, with momentum expected to carry into the rest of the year.
The uncoated fine paper business picked up relative to the second half of 2020, though it was still lower year on year and below pre-Covid levels.
The improvement in its uncoated fine paper business complemented the packaging products segment, which Mondi regards as the growth engine because of the explosion in e-commerce.
About 90% of the €1.9bn (R32bn) in capital expenditure over the past five years was channelled to investing in packaging products businesses, according to CEO Andrew King.
Online shopping, ranging from food groceries to medicines, has benefited packaging businesses. The Covid-19 pandemic has accelerated the adoption of e-commerce by consumers, creating a market for a range of suitable packaging products to preserve the integrity of the delivered items.
The shares rose nearly 4% on the day before ended 3% higher to R412.83 on the JSE, giving Mondi a market value of R200bn, having added R6bn at closing prices on Thursday.
“We continue to see excellent growth opportunities across our range of packaging businesses, which currently contribute around 75% of group earnings. We have supported this growth with meaningful investment of over €1.7bn above depreciation, and invested in these businesses over the past five years. Importantly, we continue to progress further growth projects in all our packaging segments and we certainly see plenty more of opportunities to come in the future,” King said.
“In uncoated fine paper, our strategy is [to] invest the level that retains our highly competitive positioning in our chosen regional markets. In engineered materials, we look to develop specific niche positions wherever we believe we have a competitive advantage.”
Mondi said its underlying earnings before interest, taxes, depreciation and amortisation (ebitda), or core profit, fell 4% to €709m in the six months to June, affected by currency fluctuations.
The SA firm has 100 production sites across more than 30 countries, making it susceptible to currency fluctuations. It uses euro as the base currency.
Group revenue was up 5% to €3.6bn on the comparable prior year period, driven by higher sales volumes and pricing.
The group’s net debt rose to €2.04bn, from €1.79bn as at December, reflecting the investment in the business, including the acquisition of Olmuksan International Paper.
Mondi declared a dividend of €0.20 per share, up slightly from €0.19 a year before.
Update: August 5 2021
This article has been updated with more information and closing prices.
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