Barclays Adjusts Outlook on DS Smith and Mondi

Investing.com — Barclays (LON:BARC) in a note dated Monday (NASDAQ:MNDY) adjusted its outlook on DS Smith (LON:SMDS) and Mondi (LON:MNDI), noting diverging prospects within the paper and packaging sector.

DS Smith Upgrade

DS Smith received an upgrade to “equal weight” with a target price of 580p, following its pending deal with International Paper, expected to close in early 2025. Barclays suggests that this acquisition could offer DS Smith competitive advantages through expanded production capabilities, improved economies of scale, and operational synergies with International Paper.

Despite previous caution from Barclays regarding DS Smith due to significant stock gains this year following acquisition bids, they now see potential upside if the pro forma DS Smith-IP company re-rates on a higher valuation multiple. However, the “equal weight” rating indicates limited near-term appreciation while recognizing the long-term potential of the acquisition.

Mondi Downgrade

In contrast, Mondi was downgraded to “underweight” with a target price of 1150p. This downgrade reflects increased risks related to its aggressive capital expenditure, which Barclays believes is vulnerable in a market experiencing declining European containerboard demand and capacity utilization.

Mondi has committed €1.2 billion to expand production in pursuit of growth, but may struggle to maintain pricing power and margins if demand does not meet this added capacity. Barclays' projections for Mondi's EBITDA are significantly below consensus due to the challenges of realizing anticipated returns from recent investments while the industry faces softening prices.

Barclays also highlighted external risks for Mondi, including potential increased competition from Russian suppliers if the Russia-Ukraine conflict resolves, which could drive prices lower across Europe. Furthermore, Mondi's exposure to the declining uncoated fine paper market—accounting for 20% of its EBITDA—heightens its vulnerability amid trends in digitalization that reduce paper demand.