In a world where climate change is becoming an ever-increasing threat, sustainability in companies has become a key factor for investors. But there are only a few FTSE 100 stocks that have very strong sustainability credentials. Packaging company Mondi (LSE: MNDI) is one of them, and after being beaten down recently, I feel it’s now in bargain territory.
Recent events
Mondi has been hit recently due to the Russian invasion of Ukraine. This is because Mondi has significant exposure to Russia, where around 20% of its underlying profits have been made over the past three years. Further, the company has now stated that it will rid itself of all its Russian assets. It’s very likely that, amid the current turmoil, these will sell for significantly less than their intrinsic value. They may even prove to be worthless. These uncertainties have resulted in the Mondi share price sinking over 20% since the Russian invasion. It has also fallen 22% in the past year.
Other factors that have caused the packaging company’s share price to decline include inflationary pressures. These have increased the company’s costs. Further, there’s a fear that e-commerce growth is starting to slow, which could mean lower demand for packaging.
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However, despite these uncertainties, the company continues to perform well. Indeed, in the first quarter of 2022, underlying EBITDA managed to reach €574m, a 63% increase year-on-year. Excluding the Russian operations, underlying EBITDA reached €460m, a 70% year-on-year increase. This demonstrates that the firm isn’t overly dependent on Russia to stay profitable. In the trading update, it also said that “higher average selling prices more than offset continued cost pressures”. This shows that Mondi is dealing with inflation better than some other FTSE 100 companies.
Sustainability credentials
One reason I originally bought Mondi stock during 2020 was because of its sustainability credentials. The firm prides itself on this, stating that its purpose is “to contribute to a better world by making innovative, sustainable packaging and paper solutions”. This is backed up by the figures, as around 78% of Mondi’s revenues are made from products that are recyclable, compostable or reusable. Therefore, it seems the firm should be able to capitalise on society’s demand for sustainable and eco-friendly products.
What am I doing now?
When the Mondi share price sank due to the invasion of Ukraine, I used that opportunity to buy some more Mondi shares. Even though the FTSE 100 stock has risen slightly since then, I still believe that Mondi remains in bargain territory. It has a price-to-earnings ratio of around 12, indicating that investors have priced in the current uncertainties. In addition, the firm pays a dividend that yields around 3.5%, and is also covered by more than twice by profits. This makes it one of the most sustainable dividend stocks in the FTSE 100.
Therefore, I will continue to buy Mondi shares for my portfolio, as I believe that it’s well-positioned for the future.
