There’s a little wobble in the full-year figures from FTSE 100 paper and packaging supplier Mondi (LSE: MNDI) today. In fairness, the share price has been signalling weakness by drifting generally lower since the summer of 2018. Nevertheless, in the report, the directors retain their optimism about the company’s future.
Revenue came in 3% down on last year’s figure and underlying earnings per shares dipped by 10%. But the all-important number for cash from operations only ticked down by 1%. And net debt fell by 0.6%. I find the cash performance encouraging, and the directors slapped 9% on the total dividend for the year, which suggests a positive view about the outlook.
A great record on dividends
One of the things I like most about Mondi is the dividend has risen by just over 100% over five years. That’s a great record of shareholder returns, and it’s been backed up with a strong, steady and generally rising stream of incoming cash flow. Indeed, cash flow has been robust support for earnings over an extended period. I reckon there’s a large defensive element to the company’s business.
Chief executive designate Andrew King said in the report he thinks Mondi delivered a robust performance in 2019 “against a backdrop of challenging trading conditions.” And that’s a similar message to the one I reported on earlier today from the company’s smaller peer Macfarlane (which is another stock I’m tempted to buy right now).
King reckons Mondi controlled costs well over the year and saw a good contribution from “acquisitions and capital investment projects.” Luckily, that “partially offset” weakness from the firm’s key pulp and paper grades.
And the company is carrying out a capital investment programme designed to deliver growth and increase competitiveness. One example of that is the rebuilding of the Ruzomberok pulp mill in Slovakia, which the firm commissioned during the second half of the year.
There’s also an ongoing project to invest in a new 300,000 tonne “kraft top white machine” on the site, along with “major” capital investment projects at the Syktyvkar mill in Russia and the Steti mill in Czech Republic.
Well-placed in its markets
They’re not the only reinvestment projects Mondi is pursuing. And I reckon the way the firm ploughs money back into the business will help keep it well-placed in its markets to drive that ongoing cash flow and power the progressive dividend policy in the years ahead.
Looking ahead, King is “confident” about the structural growth drivers in the company’s packaging sectors, although he reckons heightened macro-economic uncertainties will likely continue to affect markets in the short term.
The current year, for example, has started off with lower prices across the company’s key paper grades. But King is seeing indicators of “stability” in pricing in “certain segments.”
The short-term outlook is a little hazy, but that could be the best time to pick up some of the company’s shares. At the recent price of 1,625p, the stock supports a dividend yield of around 4.3%, which I see as attractive.