One FTSE 100 stock I’ve been keeping an eye on recently is Mondi (LSE:MNDI). Macroeconomic headwinds have caused its share price to fall in recent months. Should I add the shares to my holdings in anticipation of its long-term recovery?
Packaging and paper
Mondi is a packaging and paper business based in the UK. Its paper division manufactures and sells paper for a variety of use, while its packaging business provides packaging solutions in many forms for businesses. Mondi has a global presence and is supported by approximately 26,000 employees.
So what’s the current state of play with Mondi shares? Well, as I write, they’re trading for 1,405p. At this time last year, the stock was trading for 1,707p. This equates to a 17% decline over a 12-month period.
A FTSE 100 stock with risks to consider
Like many businesses, Mondi has suffered due to macroeconomic headwinds and economic volatility. Soaring inflation has led to a rise in the cost of raw materials. There is also still a global supply chain crisis. Both of these issues could impact Mondi’s performance and levels of return. Rising costs of materials could eat into its profit margin. Supply chain issues could result in day-to-day operations and manufacturing being affected, which could impact the delivery and sales of its products.
The unfortunate events in Ukraine have impacted Mondi too. This is because it normally makes approximately 20% of its revenue in Russia. There is no telling how long the current geopolitical tensions will last. This is a risk I will keep a close eye on.
The investment case and what I’m doing now
Let’s look at the bull case of Mondi shares. To start with, I believe Mondi’s profile and presence is a factor that can benefit its growth, performance, and level of return. It is a global business with access to many markets. This can help offset issues in some markets, for example the current issues with Russia.
Moving on, Mondi is in a great position to benefit from the e-commerce boom as many businesses require packaging solutions for the products they sell via online channels. Online adoption and e-comerce is only set to grow too.
Looking at other fundamentals, Mondi shares would boost my passive income stream through dividend payments. The current dividend yield stands at just over 4%. This is slightly higher than the FTSE 100 average of 3%-4%. I am aware that dividends can be cancelled, however.
Last but not least, Mondi has a good track record of performance. I do understand that past performance is not a guarantee of the future. However, looking back, I can see it has recorded consistent revenue and profit for the past four years. Although revenue and profit dipped slightly in 2020 due to the pandemic, I’m buoyed by the fact that 2022 performance has surpassed 2019’s pre-pandemic performance.
To summarise, I believe Mondi may experience some issues in the short term due to current volatility. Longer term, however, I believe it is an excellent stock that could boost my holdings. As a bonus, the shares look good value for money on a price-to-earnings ratio of just eight currently. I would buy Mondi shares.
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Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022