The Covid-19 pandemic has forced retailers to pay more attention to e-commerce channels as people are avoiding shops or shops are closed due to restrictions. FTSE 100 stock Mondi (LSE:MNDI) is one of the largest sustainable packaging solutions providers and has benefited from the pandemic’s e-commerce boom.
FTSE 100 opportunity
There is strong demand for sustainable packaging as retail firms have invested heavily in e-commerce. This is to ensure they are not losing out on trade as pandemic restrictions have forced consumers to order online. I believe Mondi has capitalised on this demand for packaging. Furthermore, I believe that shopping habits will change for the longer term due to this pandemic.
When the market crashed last year, Mondi lost close to 30% of its share price value in the last two weeks of March 2020. At its lowest point, shares in the FTSE 100 firm were trading for 1,223p per share at the end of March. Since that time, it’s price has steadily climbed towards current levels. As I write, I can purchase shares for 1,850p per share. The last time shares were at this price point was back in September 2018.
Last month Mondi confirmed full-year results for the year ending 31 December 2020. The cost of raw materials increased substantially which meant revenue was down 8% compared to the previous year. As a result of this, profit was down 30% at £868m. This is still a pretty impressive figure in my opinion. Despite this, its earnings still covered its dividend payout twice over. The FTSE 100 firm was also able to make a dent in its huge debt levels through its performance.
The positive from these results was that Mondi was able to raise the dividend by a juicy 5%, which would have pleased investors. Overall, I took plenty of positives from these full-year results.
Packing a punch or too risky?
Like any other stock, Mondi comes with risks. Firstly, there was weaker demand from industrial companies. This was offset by the demand for e-commerce packaging this year. My worry is that consumers may be eager to return to shops when restrictions are lifted so this performance and demand may be short-lived. This could hinder future performance, especially if industrial packaging performance remains weaker.
Next, Mondi’s debt levels are very high for my liking. I won’t ignore the amount it wiped off its debt levels this year but can it repeat that each year? Finally, raw material costs can vary and fluctuate. This will affect performance, as seen in it’s recent full-year results which were impacted by these costs.
Despite these risks, Mondi is still a good FTSE 100 stock option in my opinion. There has been merger talk with packaging rival DS Smith but it’s very early days. This would only increase its offering and footprint along with other challenges. Furthermore, the potential for growth stems from the global drive to replace plastic with cardboard-based products.
Mondi has a good dividend yield of over 3% and its balance sheet does demonstrate a financially stable position as it is managing and paying off debt. I would consider Mondi as one of my best FTSE 100 stocks right now.
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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.