The Case For Paper Packaging Companies And The FTSE 100’s Mondi
Over the weekend I like to keep an eye on the papers and online-only media for interesting themes and stories to be covered in these articles over the week ahead. And in this week’s edition of The Sunday Times an article by investment journalist Ian Cowie caught my eye. He outlines why he had decided to sell out of plastics group RPC in order to raise the cash for a 2% allocation in his “forever fund” for Mondi, the packaging and paper giant.
It’s not that RPC had done anything particularly wrong.
So what convinced Cowie to sell out of a stock with a strong history of attractive dividends currently on an upwards trend? Other than the
The infographic below, part of logistics market research company Technavio’s report on the global packaging industry over the 2017-2021 period, nicely illustrates the industry’s medium term potential. The same report also states:
“The global packaging market, valued at $589.9 billion in 2015, will reach $770.5 billion by 2020, with a CAGR of 5.6%”.
With those long term trends underpinning the company’s strong fundamentals and the fact that
UBS has a £20 target for the company’s shares, which currently trade at £17.34 and comments:
“Developed economies have been guilty of exporting their waste to China and Malaysia for years, but both countries recently banned this practice, highlighting our need for more recyclable materials and better recycling processes.
“The cardboard packaging industry is expected to benefit from this move away from plastic, as well as the rise of
“All things considered, the future looks bright for
Institutional investors also appear to have long term faith in the company’s prospects. 15% of its stock is still owned by 3 of the largest funds in Africa.
With a market cap of almost $13 (£10.3) billion Australia’s Amcor is even larger than Mondi’s £8.38 billion. The company has listings in both Australia and on the NYSE on Wall Street. A p/e multiple of 19.35 is much higher than Mondi’s 11 so Amcor is more expensive but U.S.
A larger company still, Memphis-based paper, pulp and packaging company International Paper’s market cap of $17.08 (£14.29 billion) billion makes it the sector’s largest company in the world. A p/e ratio of just 10.33 and dividend yield of 4.65% is also attractive. A recent article in Simply Wall Street published on Yahoo Finance argues that International Paper is currently undervalued and represents a very interesting option at its current share price level. The company has gone through a bearish period and currently trades at far better p/e than many of its peers.
Source: Simply Wall St.
Dividends have also been regularly increasing over the past decade and that’s a trend that looks more likely than not to continue.
International Paper also offers dollar exposure for a bit of added portfolio diversification.
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