BofA says 'buy' Mondi, cuts Smurfit and DS Smith

Bank of America upgraded Mondi to 'buy' and cut Smurfit Kappa and DS Smith to 'hold' to take account of rising costs.

Containerboard prices are recovering and box demand is strong, fuelled by e-commerce, and the trend will continue, BofA analyst Alexander Berglund said.

But the cost of paper for recycling has almost doubled from 2020 and this will affect boxmakers Smurfit and DS Smith most. It will take those companies about a year to increase prices to protect margins whereas Mondi is more insulated and has greater exposure to higher containerboard prices, Berglund said.

Berglund held his price target for Smurfit shares at £39 and cut his 2021 earnings estimate by 7%, leaving the 2022 estimate unchanged. He cut DS Smith's price target to 410p from 440p and 2021 and 2022 estimates by 10% each. He cut both shares to 'neutral' from 'buy'.

Mondi should do well in an inflationary market with a more direct exposure to higher packaging prices and a more stable cost base, Berglund said. He lifted his rating to 'buy' from neutral, upped his 2021 earnings estimate by 6% and increased his price target for Mondi shares to £21 from £19.