Scissors, Paper, Stone

27th Nov '08 by promethean

5 comments 2797 reads

Ok, paper company, dropped like a stone... where do the scissors come in?

OK here's why I'm starting to like Mondi - I've done a stringent scissor filter on the market....

Price to Book is in the lowest quartile... something like 0.3X
Return on Capital trend is positive
Not overly geared - about 70%
Quick/Current ratios have improved in recent years... better than 1:1
Operating Margin trend is positive
Lots of serious insider buying in recent months at much higher prices.
Very unsexy busines
Cashflow good and improving.

I have to do some more research, but this looks like a solid business.

I'm not expecting much commentary in here, as this is the kind of stock that everyone ignores... but I don't think we should... it's a softening market, but they have targeted cost savings for a long time here and they are well placed. This is a classic value stock and is starting to look as though the sell off has gone way too far.

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Betasurfer

28th Nov '08

Never heard of it before actually - reading the press, it seems that it was founded by Anglo in South Africa in 1967 and expanded into Europe in the 1990s. It spun off from Anglo in 2007 as part of its efforts to concentrate on core mining operations. Slightly wierd structure - Mondi was apparently split into two separate entities with independent listings in London and Johannesburg. Together, though, the two businesses own Mondi Group and have unified management and boards. Funky.

promethean

35,000 employees over 35 countries... this is a massive business, with £4billion in sales annually. It's book value from my source is over £2 billion. It seems the market is throwing it away for nothing in this climate valued at only £600m. I am still to investigate current trading records and how the P&P market suffers through recessions historically but it's certainly in the bargain shares category... it was probably out of fashion before the market tanked but now is just being thrown away as the stock is liquid.

Certainly there were some massive volume spikes last week, and it looks to me that some funds have started buying this in serious volume.

MrT

29th Nov '08

There's a S&P report on P&P that looks quite interesting - $500, though! http://www.alacrastore.com/storecontent/spcred/683912. It suggest a pretty negative outlook, at least based on this quote. "A fall in demand appears to have already begun, with recent shipments for many paper and packaging products declining in the 5 percent to 10 percent range year-over-year. As the recession deepens, the decline in volumes could accelerate and reduce earnings and cash flows". Still, that doesn't necessarily speak to the dynamics of the specific market/segments that Mondi addresses (corrugated, bags and uncoated fine paper).

3rd Dec '08

Mondi in the toplist of movers today - rising strongly... my guess is that Mondi has bottomed. There was an amazing day's trading on the 25th where Mondi bottomed at about 125p, in a range that reached 180p at its peak... For Candlesticks enthusiasts, it completed a Bullish engulfing pattern that day that shifted the emphasis of trading to the bulls.

I'm not the best chartist, but my guess here is that Mondi will rally up to at least 250p over next month. If one has to bottom fish, then it's worth doing it with stocks in the serious value camp, of which Mondi is certainly a candidate.

5th Jan '09

Looks like I called the bottom quite nicely in this one. Still extremely lowly rated, so the trend could easily continue on past £2.60 if the market rallies meaningfully.

Scissors, Paper, Stone

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Promethean

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