Davy Research |
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Mondi
(MNDI LN)
H1 results 5% behind our forecasts due to pricing pressure; full year profits expected to be in line as price increases implemented
07 August 2012
Barry Dixon
| Closing Price: | 553p | Rating: | Outperform | 19/06/12 |
FACTS: Mondi Group reported H1 results for the six months to end-June.
ANALYSIS: Mondi Group reported H1 EBITDA of 436m, 6% below our 463m forecast. PBT, at 223m, is 5% lower than our 231m forecast.
The shortfall in EBITDA versus our forecasts is mainly in the corrugated division (100m versus 122m forecast) due to lower containerboard prices over the period. Mondi sells circa 50% of its containerboard onto the open market and was therefore hit by the fall in prices since April. In the statement, it indicates that price increases for all grades of containerboard (including recycled) were announced for July although the scale of increase has not been quantified. Its competitors have indicated price increases of 80-100/tonne.
The Bags & Coatings business also came in behind expectations (145m versus 159m forecast) due to price pressure on kraftpaper and industrial bags. The company has also announced increases for its kraftpaper grades for H2. Mondi sells roughly 50% of its kraftpaper onto the open market and its H2 performance should therefore benefit.
The Uncoated Fine Paper business was better than expected (reported 154m versus 148m expected) due to flat volumes in Eastern Europe (we had forecast a slight decline) and flat prices.
The company announced a dividend of 8.9c, 8% above last years level.
Net debt, at 1273m, is in line with forecasts following the Swecie acquisition.
The company generated operating cash flow of 353m in the period.
Management indicated that while demand in some European economies has slowed, it expects the full year result to be in-line with expectations.
DAVY VIEW: While the H1 performance is slightly disappointing versus our forecasts, it is clear from the commentary that while demand may be softer, pricing initiatives across a number of grades could have a positive impact on profits in the second half. This should result in H2 profits being better sequentially. We are slightly ahead of consensus for the full year and may have to trim estimates to reflect the impact of the H1 numbers. It still does not change the positive investment case on this story which is based on a strong cash flow and balance sheet (net debt/full year EBITDA of circa 1.4 times pre-Nordenia). We reiterate our 'Outperform' rating on the stock.
There is a conference call at 10.00 (BST). Telephone: UK 0800 917 7042; Europe & Other +27 11 535 3600; South Africa 0800 200 648.