BofA Downgrades Mondi to Neutral Rating

BofA Downgrades Mondi to Neutral Rating

BofA Securities lowered its recommendation on Mondi Plc, a paper and packaging group, from a "Buy" to a "Neutral" rating, assigning a new rating code of B‑2‑8 (previously B‑1‑7). The income rating was also shifted from 7 ("same/higher") to 8 ("same/lower"), indicating a view that dividend growth may be limited.

The brokerage reduced its price objective for Mondi’s UK‑listed shares to 780 pence, down from 980 pence, and cut the target for its U.S.-listed shares to $21 from $26. For the South African‑listed shares, the price objective fell to 170 rand from 219 rand. These targets are based on an 8× multiple of the firm’s 2026 EBITDA estimate, which sits at the upper end of a 6.5‑to‑8 times 10‑year range.

BofA cited a growing risk of weaker‑than‑expected European containerboard volumes in the second half of the year, adding downside pressure to sector earnings. While containerboard companies reported resilient volumes in March and April and recent price hikes have been effective, BofA warned that the volume gains may reflect inventory build‑up rather than genuine demand, likening the situation to the 2022 inventory unwind that led to a sharp decline in purchase volumes and prices.

Cost pressures have risen, with BofA estimating that containerboard input costs have increased by about €50 per tonne for testliner and €40 per tonne for kraftliner since before the Iran war. Correspondingly, market prices for both grades have risen by roughly €80‑€100 per tonne as of June, a pass‑through that does not translate into margin expansion and could reverse in the summer.

The analysts estimate that the European containerboard market is operating at roughly 90% of capacity, while current utilization is below 85%, implying a net oversupply of more than 2 million tonnes—about 4% of total capacity—after accounting for an estimated 1 million tonnes of potential plant closures over the next year.

BofA cut its 2026 and 2027 EBITDA forecasts for Mondi by 5%‑6%. The 2026 EBITDA estimate is now £881 million, close to the Visible Alpha consensus of £885 million, and the 2027 estimate is £1.12 billion, about 3% above the consensus of £1.09 billion. Mondi’s net debt to EBITDA ratio has risen to about 3×, up from a historical level below 2×. The stock trades at roughly 6.4× BofA’s 2027 EBITDA estimate, compared with an average of about 7.5× through the cycle.

In contrast, BofA left its "Buy" rating on rival Smurfit Westrock unchanged, maintaining a price objective of $57 (or 4,182 pence), citing the company's integration, hedging, and box‑pricing strategy as more resilient to the current downturn.

The report also referenced broader macro indicators: the Eurozone composite Purchasing Managers' Index fell to 48.5 in May, and German factory orders declined 3.8% month‑on‑month in April, underscoring the weakening demand environment.