Coronation Fund Managers believes the market is undervaluing Mondi, saying the global packaging and paper group’s earnings do not reflect its long-term potential or the strategic progress it has made in recent years.
While Mondi is feeling headwinds from cyclical and macroeconomic factors, Coronation said the market was missing the longer-term upside. With new capacity coming online, improving demand, and strong structural drivers in e-commerce and sustainability, the group was poised for a recovery in earnings as conditions normalise.
This after Mondi on Thursday reported a drop in earnings at the halfway stage of its financial year despite a strong performance by its core packaging businesses.
The company said headline earnings per share (HEPS) for the six months to end-June fell 11% to 37.2 euro cents, driven by a weaker performance by its uncoated fine paper unit and a lower forestry fair value gain.
Coronation portfolio manager Godwill Chahwahwa said while the timing of a demand recovery was uncertain, Mondi was trading at about eight times what Coronation believed it could earn in a normal market cycle, a low valuation for a company with strong market positions, integrated operations and long-term growth prospects.
“Under mid-cycle trading conditions, a business of this quality and growth potential, with the significant investment in capacity expansion, will generate earnings meaningfully higher than what was reported in 2024,” said Chahwahwa.
He attributes the subdued earnings to the ongoing cyclical downturn in Mondi’s end markets, structural growth drivers that have not yet fully translated into earnings, and the time lag in contributions from recent acquisitions and capacity expansions.
Group revenue rose slightly, supported by higher average selling prices across its packaging operations. Its corrugated packaging division delivered double-digit growth in earnings, while flexible packaging also posted a solid increase.
Despite pressure from currency movements and inflation, the company maintained stable underlying earnings before interest, taxes, depreciation, and amortisation (ebitda), helped by cost control and improved volumes. Excluding forestry gains, core profitability improved.
Mondi completed the acquisition of Schumacher’s Western Europe packaging assets at end-March and said the integration process was progressing well. Major capacity expansion projects across the group were operational and ramping up production.
Cash generation improved in the period but leverage increased following investment activity. The company declared an interim dividend of 23.33c per share, unchanged from last year.
“We continued to make good progress on our key strategic initiatives. All our major capacity expansion projects are now operational and ramping up production and sales, and the integration of Schumacher is on track,” Mondi CEO Andrew King said.
It is still early days, but ultimately, as the cycle turns, industry margins should recover to more sustainable levels.
— Godwill Chahwahwa
Coronation portfolio manager
Coronation said the short-term pressure on margins was due to selling prices falling faster than input costs during the recent downcycle. In some areas, such as European recycled containerboard, excess capacity had pushed margins to unsustainably low levels.
“Easing inflation and lower interest rates are improving consumer affordability and supporting a recovery in industrial activity. It is still early days, but ultimately, as the cycle turns, industry margins should recover to more sustainable levels.”
Chahwahwa said demand across many of Mondi’s end markets remained below prepandemic levels, but there were signs of stabilisation. Box shipments recovered by 4% in 2024, and the first half of 2025 saw moderate price increases in packaging markets.
The rise of e-commerce, increased food delivery and regulatory pressure to replace single-use plastics were driving global demand for sustainable packaging, said Coronation.
Mondi has invested heavily to position itself as a beneficiary of this shift. It is the world’s leading producer of Kraft paper and paper bags, the top virgin containerboard producer in Europe, and a major player in corrugated and flexible packaging. About 85% of its revenue is now derived from sustainable paper packaging.
In 2023, Mondi launched a €1.2bn capital investment programme to build new mills, debottleneck existing operations and expand its converting capacity. Most of these projects are now operational or in the ramp-up phase and have yet to contribute meaningfully to group earnings.
Coronation also highlighted Mondi’s vertically integrated model and operational efficiency as competitive advantages. About 75%-80% of its production capacity is in the lowest half of the industry cost curve, and the company is 90% energy self-sufficient due to its biomass-based power generation, Chahwahwa said.
He said ownership of forestry assets in SA, integration from pulp mills to box-making plants, and customer proximity through a network of converting operations enabled Mondi to maintain high operating rates and secure long-term relationships.
He said within its flexible packaging business, 15% of products sold in 2024 were developed in the past five years in partnership with clients, underscoring the group’s innovation capability and customer-centric model.
Investors are not convinced, with Mondi’s share price falling 10.5% to R248.11.
Coronation holds an about 7% stake in Mondi.
Update: July 31 2025
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