I think the Mondi (LSE: MNDI) share price might have passed under the radar for many investors. And FY results on 22 February show what a good long-term buy it might be.
Some stocks crashed in the Covid years, recovered dramatically, and investors have hardly been able to take their eyes off them. Well, I say some, but I’m thinking specifically of Rolls-Royce Holdings, which has turned around impressively.
But a boring old company that makes packaging and paper products? It just got on with the job, and it now looks set to deliver long-term dividends. But the share price is still down 40% in the past five years.
FY 2023
Revenue and underlying EBITDA in 2023 dropped, by 18% and 35% respectively. Interestingly, though, cash generation was up 2% for the year. And that underlies my thought that we could be in for that steady dividend stream.
In fact, despite the fall in earnings, the board pegged the dividend at the same 70 eurocents (approximately 60p) as in 2022. On the share price at the previous close, that’s a dividend yield of 4.3%.
It’s clearly not the biggest yield on the FTSE 100. But broker forecasts have it rising above 5% by 2025. And that’s on the back of strongly rising earnings.
Debt risk
I see debt as one of the biggest risks at the moment, and Mondi’s does concern me.
Pro-forma net debt stood at €1,195m at 31 December. That puts the net debt to EBITDA ratio at 1.0x, which is a bit scary. But the firm puts its net debt to underlying EBITDA ratio at just 0.3x, which I don’t see as a problem.
However, the cash and debt situation is complicated by the the disposal of the group’s Russian operations and payment of a special dividend. And I think the uncertainty could be a drag on the Mondi share price until we have more clarity.
Still, the firm puts its liquidity at €2.3bn, which would calm my nerves a bit.
Whether Mondi’s earnings have actually bottomed out and really are set to rise is another unknown, though.
Turnaround
In this latest update, CEO Andrew King said: “In the first quarter of 2024, selling prices are generally lower than the averages achieved in the second half of 2023. However, we are seeing improvements in our order books and are implementing price increases across our range of paper grades. Input costs remain elevated compared to historical levels but have broadly stabilised since the end of 2023.“
I reckon the first half of the current year could be what counts. And if we see prices and profits rising by the interim stage, that could give the share price a boost.
Meanwhile, this looks like it could be a good time to buy for those long-term dividends. I’d say the cash-generative nature of the business provides some safety on that score.
Mondi is on my ISA candidates list.
