Mondi Plc – Operating with Strong Balance Sheet

Mondi PLC (LON: MNDI) is a FTSE 100-listed Company, which is engaged in packaging and paper value chain. It has key operations in central Europe, Russia, North America and South Africa.

On 6 August 2020, the Company will announce the half-year results.

Recent News

On 26 May 2020, the Company announced the appointment of Mike Powell as Group Chief Financial Officer and as an executive director of Mondi plc.

Trading Update (as on 9 April 2020)

In the first quarter of 2020, the Group has delivered a strong performance and was in line with previous guidance. Led by the ongoing cost reduction programmes and lower pricing across the key paper grades mitigated by lower input cost, the underlying EBITDA decreased by 18% to €385 million as compared with the corresponding period of the last year (€471 million), but it was in line with Q4 FY19 (€381 million). During the first quarter of 2020, the order book remained decent, with the strengthening in Engineered Materials businesses, consumer and e-commerce end-uses across the packaging. Moreover, the Group has minimised contractors and other non-operating people on the key sites. The Group has stopped discretionary spending. Mondi has a robust balance sheet, with a strong liquidity position of approximately €1.5 billion and the successful launch of a €750 million 8-year Eurobond.

Share Price Performance


1-Year Chart as on 29 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Mondi Plc’s shares were trading at GBX 1,447.00 on 29 July 2020 (before the market close at 10:00 AM GMT+1), up by 1.40% against the last day closing price. Stock 52 week High and Low were GBX 1,857.50 and GBX 1,156.50, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

As a multinational Group, operating globally, the Group is exposed to the effect of changes in foreign currency rates.To meet the new regulations, the Group needs to implement new processes, failing to do so would increase the compliance risk.The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Valuation Methodology



Conclusion

The Company delivered a healthy performance in Q1 FY20, despite the challenging environment. The Company expects capital expenditure of approximately €600 million in 2020. It is also maintaining a strong and stable financial position and investment-grade credit metrics. Moreover, the rising demand for containers and packaging in Europe, acquisitions, the launch of new products, strategic investments and restructuring could provide growth opportunities to the Company. In this unprecedented crisis, the Group is taking several suitable actions to ensure that it will stay well-positioned to withstand an extended period of uncertainty. Also, the Group is growing through selective capital investment opportunities, with strong track record and pipeline in progress, and further options to leverage quality asset base being explored.

Over the past four years (FY15 - FY19), the Company’s revenue surged from €6,819.00 million in FY15 to €7,268.00 million in FY19. Compounded annual growth rate (CAGR) stood at 1.61%.

Based on the above rationale and supported by valuation done using the above method, we have given a “Buy” recommendation at the current market price of GBX 1,435.00 (as on 29 July 2020, before the market close at 8:02 AM GMT+1) with lower double-digit upside potential based on 15.20x Price/ NTM Earnings (approx.) on FY20E earnings per share (approx.).

Sylvania Platinum Ltd – Operating with Strong Cash Reserves

AIM-listed Sylvania Platinum Limited (LON: SLP) is a producer of Platinum Group Metals (PGMs), comprising palladium, platinum, and rhodium.

Trading Update (for the quarter ended 30 June 2020 (Q4 FY20), as on 27 July 2020)

In the fourth quarter of 2020, the Group produced 9,055 ounces of platinum, palladium, gold and rhodium (known together as 4E platinum Group metals), more than halved from 19,968 ounces in the third quarter of 2020. This was driven by a hard lockdown imposed in South Africa, the location of the Group’s Sylvania Dump operations. Operations were running at 50% during May 2020 and then back to 100% in June 2020. For the financial year 2020, the Company reported production of 69,026 4E PGM ounces. Led by the lower production, the Group recorded US$13.2 million in net revenue for Q4 FY20 and a net profit of US$2.2 million, down 91.3% from US$25.3 million in the prior quarter. In the fourth quarter of 2020, the cash cost per 4E PGM ounce increased to US$948 from US$565 in Q3 FY20, driven by higher production of fixed costs amid the lower production. EBITDA decreased to US$4.2 million in the fourth quarter of 2020 as compared with the previous quarter (Q3 FY20: US$32 million). The Company had a cash balance of US$55.9 million after buying back 5.6 million shares during the quarter at the cost of US$3.4 million.

Share Price Performance


 1-Year Chart as on 29 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Sylvania Platinum Ltd’s shares were trading at GBX 49.70 on 29 July 2020 (before the market close at 10:04 AM GMT+1), down by 2.17% against the last day closing price. Stock 52 week High and Low were GBX 67.00 and GBX 24.00, respectively.

From the technical standpoint, the shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Key Risks

The Group’s operations are also impacted by the outbreak of Coronavirus pandemic in the short term.Global political uncertainty regarding trade policy poses a risk for the Group, including protectionist measures and legislation in local markets. On the other hand, commodity prices and exchange rate fluctuations can also affect the Company since metal prices are volatile.

Conclusion

Despite the lower production, the Group witnessed strong cash balance, which is owed to cash inflow from third quarter ounces being delivered. The Mooinooi chrome proprietary processing modifications and optimisation project is well placed and is projected to be commissioned in the financial year 2021, which will improve PGM feed grades and ounces. Overall, the Group is in a great position to withstand short-term fluctuation, with an ability to generate free cash flow continuously. Also, The Group stays debt-free and continues to generate adequate cash reserves to fund capital expansion and process optimisation projects.

Over the course of 3 years (FY16 - FY19), the Company's revenue surged from US$39.51 million in FY16 to US$70.54 million in FY19. Compounded annual growth rate (CAGR) stood at 21.31%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 49.70 (as on 29 July 2020, before the market close at 10:04 AM GMT+1) and will recommend fresh buying at the right time.
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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