Mondi boosted by Morgan Stanley upgrade to 'overweight'
Paper and packaging group Mondi got a boost on Wednesday as Morgan Stanley upgraded the stock to ‘overweight’ from ‘equalweight’ and lifted the price target to 2,200p from 2,000p.
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.