Mondi boosted by Morgan Stanley upgrade to 'overweight'

The bank pointed out that consensus earnings are being downgraded, resulting in a de-rating as the market resets its growth expectations. However, MS said it has gone too far and Mondi’s lower earnings outlook than its peers is now priced in, creating a buying opportunity.

MS said that post the special dividend it expects in February, Mondi appears to price in nominal earnings growth into perpetuity of 2% a year. The bank said this is “easily achievable”, adding that it sees 7-8% per annum organic earnings growth drivers to exceed that level of earnings growth for the next three to four years.

As far as it expectations for a special dividend are concerned, MS pointed out that at the capital market day, management signalled quite strongly that the balance sheet is too strong and that a cash distribution to shareholders is likely.

“We think liquidity constraints in Mondi's dual-listed structure make a special dividend more likely than a buyback,” it said.

Morgan Stanley added that the market appears to be underestimating Mondi’s project pipeline, suggesting upside potential.

At 0910 GMT, the shares were up 2.2% to 1,842p.