Mondi Plc - Robust Financial Performance and Resuming Dividend Payments

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 15 October 2020, the Company will release the trading update.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 6 August 2020, the Company provided a half-year results for the six months ended 30 June 2020, with a robust financial performance in a challenging environment. Led by lower average selling prices across the key paper grades, the Group’s revenue was down by 8.46% year-on-year to €3,452 million in H1 FY20 (H1 FY19: €3,771 million). For H1 FY20, the underlying EBITDA decreased by 17% year-on-year to €738 million, due to softer pricing and exacerbated by the impact of the coronavirus pandemic. The profit before tax for H1 FY20 decreased by 26% year-on-year to €466 million. On 30 June 2020, the Group had a strong balance sheet and robust liquidity position, with net debt of €2,039 million, €805 million of undrawn committed debt facilities and net cash of €606 million. Further, the Group stated that it would pay 29.75-euro cents per share dividend relating to 2019.

Share Price Performance

 
1-Year Chart as of 6 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Mondi Plc’s shares were closed at GBX 1,469.60 on 6 August 2020, up by 3.12% against the last day closing price. Stock 52 week High and Low were GBX 1,794.00 and GBX 1,156.50, respectively.

From the technical standpoint, shares were trading above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The Company operates in cyclical markets, and fluctuations in the key packaging and paper prices can have material implication over profit and cash flow.Climate change has the potential to affect the business in various ways. The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Valuation Methodology



Conclusion

Despite the heightened macro-economic uncertainties remain, the Group is moving towards the second half of 2020, with robust demand for packaging daily essentials and an increase in uncoated fine paper order books. Furthermore, the Group stated that it is well-positioned for recovery with cost-advantaged asset base, a unique portfolio of sustainable packaging solutions and a strong balance sheet. The Board has resumed the payments of dividends, with a dividend of 29.75-euro cents per share relating to 2019. Overall, the Group delivered a robust performance in the first half of 2020, with the resilient business model and strong financial position.

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%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 1,469.50 (as on 6 August 2020) and will recommend fresh buying at the right time.

Synthomer Plc – Operating with Strong Balance Sheet Supported by Robust Free Cash Flow

FTSE 250 listed Synthomer Plc (LON: SYNT) is operating as a supplier of aqueous polymers. It provides customer-focused services from several regional centres and has the operational headquarter in London, UK.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 6 August 2020, the Company provided an interim result for the six months ended 30 June 2020, with resilient performance through COVID-19 pandemic. In H1 FY20, the Group’s revenue decreased by 3.8% year-on-year to £733.7 million (H1 FY19: £762.7 million), driven by significant fall in raw material prices in the second quarter of 2020. During a period of challenging economic activity, the Company delivered H1 FY20 Underlying EBITDA of £100.2 million, in line with the first half of 2020 of £99.7 million.Underlying earnings per share stood at 10.8 pence, a decrease of 34.5% year-on-year (H1 FY19: 16.5 pence), reflecting the higher effective tax rate, the lower profits before tax and the impact of the pre-emptive acquisition (which completed on 1 April 2020). As of 30 June 2020, the Group witnessed a strong balance sheet with H1 free cash flow of £56.2 million, liquidity of approximately £500 million, the net debt of £575.5 million and the covenant ratio of 2.8x.

Share Price Performance

 
1-Year Chart as of 6 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Synthomer Plc’s shares were closed at GBX 302.00 on 6 August 2020, up by 2.17% against the last day closing price. Stock 52 week High and Low were GBX 371.00 and GBX 182.30, respectively.

From the technical standpoint, shares were trading above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The Company operate in highly competitive markets, and the Group could lose market share to other producers of speciality chemicals if SYNT fail to stay competitive or innovate to produce new products. In the current set of COVID-19 environment, Specialty Chemicals space has taken a hit given the issues circling around production and demand.

Valuation Methodology


Conclusion

The Group stated that SYNT is encouraged by much-improved trading in June 2020 and July 2020. The Company now anticipates full-year EBITDA to be broadly in line with current market expectations. Also, the Board expects to pay the full-year 2020 final dividend. OMNOVA integration is now expected to increase in recurring pre-tax cost synergies. From this, the Group is on track to deliver $20 million of run-rate synergies by the end of the financial year 2020. The Group has also taken an effective action to preserve cash and cost, with capital expenditure reduced from £90 million in 2019 to £50 million in 2020. Overall, the Group is confident of making further progress in 2020, with a strong balance sheet (supported by solid free cash flow), nitrile demand stays healthy, and increased synergies from OMNOVA.

Over the past four years (FY15 - FY19), the Company’s revenue surged from £870.10 million in FY15 to £1,459.10 million in FY19. Compounded annual growth rate (CAGR) stood at 13.8%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 302 (as on 6 August 2020) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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