JPMorgan downgrades Mondi on lack of catalysts

JPMorgan Cazenove downgraded paper and packaging group Mondi to ‘neutral’ from ‘overweight’ following the company’s third-quarter numbers on Thursday.

The bank said that while the long-term investment case is intact, a lack of catalysts suggests there is no need to rush.

“Mondi remains a well-run company with a clear strategy and supportive balance sheet (M&A optionality, dividend yield 3% FY16e) and we ultimately expect it to benefit from strong cash flow generation and targeted internal capital investment,” JPM said.

“However, short term factors (forex, forestry gain comps) and a lack of near term catalysts (price hikes across main grades unlikely in next 3-6 months) lead us to become more cautious on the near-term upside.”

JPM said Mondi’s main currency exposures – the South African rand, the Russian roble and the Polish zloty – are volatile, making forecasting difficult.

However, it looks likely that the benefit over the next nine months could be weaker versus gains seen year-to-date.

“If these remain at spot into FY17 this would result in a negative €2m impact for FY17 - not much and forex may yet move in Mondi’s favour, but this looks unlikely to provide the same boost as in YTD FY16.”

At 0900 BST, Mondi shares were flat at 1,599p.