Tuesday, 26 February 2013 - 20:00
Mondi Ltd - What is the future of paper?
History and Structure
Mondi is an international packaging and paper Group, listed on both the Johannesburg and London stock exchanges. The company employs more than 26,000 workers and runs production operations across 29 countries, with key interests in South Africa, central Europe, Russia and other emerging markets. The company is truly integrated across the production chain, from forestry right through to the manufacture of pulp, paper, corrugated packaging, industrial bags and newsprint.
Mondi started off as a division of Anglo American when the Merebank Mill was built in 1967. After expanding throughout South Africa, the company set its sights on Europe in the early 1990’s and started a long process of expansion through acquisition. From 2004 to 2007 the global paper and packaging industry suffered from production overcapacity and slow demand growth, and Anglo decided to unbundle Mondi, which listed separately in July 2007. Given its tough operating environment, the company decided to streamline its structure once again for the sake of cost control.
Mondi has recently released their results for the year ended 31 December 2012, and has managed to recover admirably from a disappointing first quarter. The company has reported improved volumes and pricing after Q1, as well as strong cash generation from operations of €845 million.
The group achieved a ROCE (Return on Capital Employed) of 13.7%, which exceeded the Group’s through-the-cycle target of 13%, but fell short of the 15% ROCE achieved in 2011. Earnings per share dropped 3% from 71.8 € cents in 2011 to 69.6 cents in 2012, but management were able to raise the total dividend for the year by 8% from 26 € cents in 2011 to 28 cents in 2012.
Group revenue increased by 1.2% to € 5,807 million, while underlying EBITDA (Earnings before interest, taxes, depreciation and amortization) decreased from 16.8% to 15.9%, and under-lying operating profit decreased from 10.8% to 9.8%. When analysing the development of underlying profit from 2011 to 2012, it is clear that management’s cost reduction, volume improvements and acquisitions and disposals has contributed positively. The sole detractor from operating profit was net negative price variances.
Mondi has spent €1.2 billion on acquisitions as part of their initiative to increase exposure to the higher growth packaging segments of the market. As a result, the capital employed in packaging businesses has risen from 57% to 67% of the Group’s total. The company is also very well positioned to take advantage of growth in emerging markets, with 50% of turnover already originating from those regions. Capital expenditure has dropped off from € 700 million in 2008 to € 307 million for 2012, with two major projects announced this year: the €128 million Ružomberok recovery boiler and the €70 million Štěti paper machine. Management expects excellent results in terms of IRR (internal rate of return) from both projects.
Current Valuation and Future Prospects
Mondi currently trades at a PE ratio of 17.29 and a dividend yield of 2.73%, and the share price has climbed 58% over the past 6 months. The company’s only rival in the local paper industry, Sappi, trades at a PE ratio of 34.05 and has not declared a dividend since late 2008. Sappi has struggled to remain profitable over the last years, but still remains a highly cash generative business. Both these companies benefit from the fact that the paper industry is very capital intensive and produce high barriers to entry, and also offers investors an effective rand hedge.
Mondi’s future prospects hinges on its ability to shift its operations towards more profitable segments of the market, and to maintain its recent run of value adding acquisitions.
Cor Van Deventer
021 914 4966
Tue, 26 Feb 2013
Shareholders are referred to the cautionary announcement dated 11 February 2013 and are advised that as negotiations have been terminated, caution is no longer required to be exercised by shareholders when dealing in the company's securities.. . .
South Ocean's headline earnings per share for the 12 months ended 31st December 2012 is expected to be between 20% to 30% higher than for the corresponding prior year and earnings per share is expected to be between 100 cents to. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||35143.65||-215.00||-0.61%|
|JSE Indust 25||17:00||41601.73||-110.00||-0.26%|
|Rand / Dollar||19:59||8.8441||0.0088||0.10%|
|Rand / Pound||19:55||13.3707||0.0012||0.01%|
|Rand / Euro||19:55||11.5454||0.0044||0.04%|
|Rand / NZD||19:59||7.3025||-0.0609||-0.83%|
|Rand / AUD||19:55||9.0498||-0.0310||-0.34%|
|Yen / Dollar||19:59||91.7220||-0.4560||-0.49%|
|Euro / Dollar||19:59||0.7662||0.7662||0.00%|
|Dollar / Euro||19:59||1.3053||-0.0010||-0.08%|
|Pound / Dollar||19:55||0.6601||0.0008||0.12%|
Click here for the Sharenet Spot Price page
The JSE Today
* Includes all listed instruments on the JSE
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||45,348.00||-178.00||-0.39%|
|Oil & Gas ||29,331.00||-291.00||-0.98%|
|Oil & Gas Producers ||15,770.00||-157.00||-0.99%|
|Basic Materials ||27,596.00||-259.00||-0.93%|
|Forestry & Paper ||19,973.00||-365.00||-1.80%|
|Industrial Metals ||29,168.00||73.00||0.25%|
|General Industrials ||115.00||-1.00||-0.86%|
|Consumer Goods ||43,493.00||-43.00||-0.10%|
|Automobiles & Parts ||7,391.00||-12.00||-0.17%|
|Health Care ||54,837.00||-233.00||-0.42%|
|Index Name||RP||Move||% Move|
|Food Producers ||68,566.00||-473.00||-0.69%|
|Personal Goods ||698.00||-6.00||-0.99%|
|Consumer Services ||81,361.00||-323.00||-0.40%|
|General Retailers ||63,096.00||-107.00||-0.17%|
|Travel & Leisure ||5,157.00||-64.00||-1.23%|
|Support Services ||2,348.00||-4.00||-0.20%|
|Non-life Insurance ||46,578.00||-315.00||-0.67%|
|Life Insurance ||26,813.00||-186.00||-0.69%|
|General Financial ||2,765.00||-32.00||-1.15%|
|SHARIAH TOP40 ||3,393.00||-33||-0.99%|
|FTSE/JSE SHARIAH ALL||3,513.00||-30||-0.87%|
|FTSE JSE Fledgling ||5,864.00||-32||-0.56%|
|FTSE/JSE Alt X ||860.00||-8||-0.99%|
|SA LISTED PROPERTY ||512.00||0.48%|
|CAPPED PROPERTY ||410.00||0.13%|
|FTSE/JSE RAFI 40||8,102.00||-56||-0.70%|
|Capped Top 40||18,544.00||-112||-0.60%|
|Capped All Share||20,022.00||-109||-0.54%|
|JSE TABACO ||5,896.00||42||0.73%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|IPL||IMPERIAL HOLDINGS LTD||HOLD||21/01/2013|
|BIL||BHP BILLITON PLC||HOLD||21/01/2013|
|TRU||TRUWORTHS INTERNATIONAL L...||SELL||21/01/2013|
|AMS||ANGLO AMERICAN PLATINUM C...||HOLD||21/01/2013|
|ANG||ANGLOGOLD ASHANTI LIMITED||HOLD||21/01/2013||
|Expected||Company Name||Fin. Date|
|27/02/2013||DIGICORE||December 2012 (Interim)|
|27/02/2013||GPL-PREF||December 2012 (Interim)|
|27/02/2013||GRANPRADE||December 2012 (Interim)|
|27/02/2013||GRINDROD||December 2012 (Final)|
|27/02/2013||GRINDROD PREF||December 2012 (Final)|
|ZURICH SA||06/02/2013||22/02/2013||04/03/2013||R 2.0000|
|ASCEN A||08/02/2013||22/02/2013||04/03/2013||R 0.0317|
|ASCEN B||08/02/2013||22/02/2013||04/03/2013||R 0.0143|
|SKJP||Sekunjalo Investments Ltd.||26/02/2013||Confirmed|
|SKBP||Sekunjalo Investments Ltd.||26/02/2013||Confirmed|
|SKJA||Sekunjalo Investments Ltd.||26/02/2013||Confirmed|
|SKJ||Sekunjalo Investments Ltd.||26/02/2013||Confirmed|
|MSA||M-S Holdings Ltd.||27/02/2013||Confirmed||
Stock Exchange News Service
Click here for more SENS news