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Stock of the week: Mondi

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Ian Forrest, investment research analyst at The Share Centre, picks Mondi as stock of the week.

This week’s stock of the week is Mondi, an international packaging and paper group involved at every stage from growing the trees through to the final product. With operations across more than 30 countries, predominantly in central Europe, Russia and South Africa, the group enjoys a global reach. Its production in emerging markets generally leads to less pressure on costs.

A positive first quarter trading update in May reported a 15% increase in operating profit. Costs were higher this year than previously but this was offset by higher average selling prices for its key paper grades.

While recent mill maintenance closures have posed a cause for concern, the group has invested in new and existing plants which have led to improved efficiency. As a result, profit margins have improved and net debt has fallen.

Currency movements had a net negative impact on operating profit compared to the previous year, mainly owing to a weaker US dollar and Russian rouble relative to the euro. Inflationary cost pressures have also increased and conditions remain challenging for its consumer packaging division.

Nonetheless, demand for the majority of its products continues to increase around the world, on the back of online shopping and changing social trends, which should be viewed as a positive. The shares trade on a prospective P/E rating of around 134 and the company deserves to have a higher profile.

Due to its positive results and optimistic outlook, we recommend Mondi as a ‘buy’ for a medium risk balanced portfolio.

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