1 FTSE 100 stock that is beating inflation hands-down

Packaging and paper provider Mondi (LSE: MNDI) is one of the FTSE 100 gainers in early trading today. I am sure some of this has to do with recovery in the index, which dropped by 1.1% yesterday. But I reckon it has been helped in no small part by its own trading update. 

Last week, I had said that this update will be worth watching. This was because the company had talked of cost pressures in some of its earlier updates. While it was planning to pass on the cost increases, it remained to be seen how its customers would accept them. So far, no adverse effects are evident. 

Mondi’s earnings rise on higher prices

Mondi’s underlying earnings before interest, tax, depreciation, and amortisation, known as EBITDA, is €388m. This is up by a significant 27% from the same quarter last year. It is also up by 9% from the quarter before. So despite a gamut of rising costs, including energy, transport, and chemicals, the company is clearly thriving. It says that this is because of higher average prices and volume increases. Moreover, there has been an €30m impact from scheduled maintenance shuts, indicating that underlying EBITDA could potentially be way higher. 

The spectre of inflation has not passed as of now, though. Mondi does expect the fourth quarter to be impacted by both more cost increases and maintenance shuts. But for now, I am optimistic about it.

Analysts are positive on the FTSE 100 stock

Analysts’ forecasts too, are largely positive, expecting an average 17% increase in Mondi’s share price over the next 12 months, according to numbers compiled by the Financial Times. Of course it bears underlining that all forecasts are subject to change. And that is probably even more so in the current environment, where there is still a lot of uncertainty about the pace of recovery in the face of rising inflation and tightening policies post-pandemic. Still, they do offer a good perspective on what could be.

Share price correction

I agree with the analysts, after looking at Mondi’s latest performance update along with its share price trends. The past couple of months have seen a 12% fall in its share price, which now looks like a good opportunity for me to buy on dip.

That Mondi’s share price has seen an increase of only 8% over the past year could be a downer. But here too, this is explained to a large extent by the drop in the past two months. Also, the company was one of the early gainers after the March 2020 stock market crash. As a result, it was trading at pre-crash levels by September last year, as demand for online shopping buoyed the entire e-commerce ecosystem. In other words, it is a high base effect on its share price. 

Would I buy the Mondi stock?

All in all, I continue to be positive on the FTSE 100 stock. This is especially so with an eye to its long-term future as a key piece of the online shopping infrastructure. I intend to buy it when its share price is still down.