- Profits plunge and dividend is cut at packaging giant
- Cost cutting and efficiency drive provides some support, but outlook remains uncertain
- Shares hold firm as they already trade near twelve-year lows
- Stock’s valuation looks interesting on the basis of asset value, in absolute terms and relative to global peers
“Not so long ago, there were three paper and packaging stocks in the FTSE 100, but there is now just one after the takeover of DS Smith and Smurfit’s merger and switch in its primary listing to New York, and investors may not feel like they are missing much after dismal full-year results from Mondi,” says AJ Bell investment director Russ Mould.
“Profits lived down to the low expectations set by autumn’s profit warning, as pre-tax income fell by almost a third, and management sanctioned a 60% cut in the dividend, but cuts to capital expenditure and costs should mean the company’s profits are very sensitive to any improvement in volumes, demand or pricing.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts,
“The weak numbers and cautious outlook leave Mondi’s shares back at levels last seen in early 2014 and shareholders in Anglo American may well look back and feel that it was the right decision to demerge and spin off the packaging expert back in summer 2007.
Source: LSEG Refinitiv data
“Even more interestingly, Mondi’s stock market capitalisation of £4.1 billion is not much higher than the £3.7 billion book value of the tangible assets on its balance sheet. It is also intriguing to note that the stated value of its production facilities and forests is £5.5 billion, so Mondi’s valuation represents a discount to that, and therefore there will be an even bigger gap between the stock market cap and replacement cost of those assets.
“Patient investors may feel this is an opportunity to reassess Mondi in light of any potential recovery in the paper and packaging cycle, which could come from a better economic outlook, industry self-help in the form of capacity closures or a combination of the two.
“Allowances must be made for differences in business mix, but Mondi is one of the cheapest major paper and packaging plays on a book, or net asset, value basis and only the Scandinavian players SCA and Stora Enso look as temptingly valued relative to their fixed assets, and that is in the main due to their much larger forestry holdings rather than their production, plant and equipment (PP&E).
Source: Company accounts, LSEG Refinitiv data, Marketscreener, consensus analysts’ forecasts
“The question now is just how patient may a would-be contrarian investor in Mondi have to be. Management continues to argue that the rise (and rise and rise) of e-commerce and home shopping, coupled with a shift toward recyclable paper-based options and away from plastic packaging, will prove to be a positive for demand in the long term. The share price suggests that investors will take more convincing, but as legendary US analyst Walter Deemer always used to say, when the time comes to buy no-one will feel like it, because the outlook is still so bleak.
“It may not take that much for Mondi’s fortunes to improve, however. Mondi’s tangible fixed asset base comes to €5.7 billion (with another €0.5 billion of forestry assets on top), and that represents three-quarters of 2025’s annual sales of €7.7 billion.
“Such high fixed costs, with depreciation at some 7% of annual sales, mean that the company’s bottom line will be very sensitive to even minor changes in volumes or pricing. In 2025, sales rose by 3% but pre-tax profits fell by around a third, both including and excluding exceptional items, thanks to weak prices.
“The larger-than-expected dividend cut also gets a lot of bad news out of the way and removes a further distraction from the boardroom’s turnaround agenda.
“The cut may not have needed to be that deep, given how net debt is relatively low at €2.7 billion, compared to €4.2 billion of tangible equity, and also how interest cover stacked up well, with operating profit representing comfortably more than four times the annual interest bill.
“A reduction in the capital investment budget for 2026 to €550 million, from previous guidance of €650 million, also helps the cost base and cash flow.”
Source: Company accounts, Marketscreener and analysts’ consensus forecasts
