FTSE lower, Mondi lifted by special dividend, IMI outlook disappoints

“The FTSE 100 starts the day on the back foot after weakness in the US and Asia overnight and ahead of a widely trailed speech by prime minister Theresa May on Brexit later,” says AJ Bell Investment Director Russ Mould.

MONDI

“The market’s obsession with income continues as the one euro special dividend which accompanies 2017 results from paper and packaging firm Mondi helps it top the FTSE 100 leaderboard.

“The capacity of Mondi to reward shareholders in this way reflects the cash generative dynamics of its industry.

“The company also reveals the cost pressures and currency headwinds it warned of in October have been balanced out by operational improvements. Earnings were broadly in line with forecasts, up 4% year-on-year.

“You might think packaging was a pretty commoditised area in which operators enjoy very little pricing power. However, packaging has become an increasingly important marketing tool for the product inside, and therefore more of a priority for consumer goods businesses, notably Mondi reports it has pushed through higher prices across its range of products in early 2018.”

IMI

“FTSE 250 engineer IMI has been in restructuring mode for the past three years or so, adapting to changing conditions in its end-markets. Full year results for 2017 show an improvement in pre-tax profit with IMI hitting market expectations at £224m.

“The market had expected 2018’s earnings to start to show the benefits of recent restructuring efforts, however it seems it may be premature to expect a radical uplift in earnings, judging by comments in today’s results.

“IMI is guiding for organic revenue growth in 2018 and for margins to reflect ‘modest improvement’. Market conditions are expected to improve for its Precision Engineering arm, which is the largest division by revenue.

“Perhaps the key disappointment in today’s announcement is comment that it expects the oil and gas market to remain in a tough trading environment.

“The oil price has enjoyed a resurgence this year and many observers may have expected the likes of IMI and other engineers and service companies to enjoy an uptick in work. It now looks like IMI may not have a sudden rush of new orders.

“The other negative is an 11% reduction in operating cash flow in 2017.”

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