Citi upgrades Mondi to 'buy' on compelling valuation

10th Mar 2014 09:15

Citigroup has upgraded its rating for Mondi from 'neutral' to 'buy' and raised the target price from 1,110p to 1,260p, saying it sees "another strong year ahead" for the paper and packaging group."Mondi continues to deliver strong earnings driven by improvements in costs, acquisitions and volume growth. 2013 [results] showed again why Mondi's impressive share price performance over the past five years has been justified," Citi said.The US bank said that the stock has an "attractive valuation", trading at a "compelling" price-to-earnings multiple of 12.1 which is cheaper than others in the sector."On our estimates, Mondi also remains at a discount to the FTSE industrials and JSE All Share index, not justified given its strong earnings growth profile, dividend growth and potential for further re-rating, in our view."Citi said that it is conservative over potential margin expansion and pricing power for Mondi's key paper grades in Europe, but does see an improvement in the broader macroeconomic environment. It expects the company to deliver 8% year-on-year growth in operating profits this year.The stock was up 2.5% at 1,118p by 11:40 on Monday.BC