Down over 25%, here’s a bargain FTSE 100 stock I’m buying 

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There are many issues facing UK companies at the moment. They’re dealing with the inflation that’s driving up costs and denting consumers’ discretionary income. And the Bank of England has warned of a recession this year. But it’s still hiking interest rates, with the base rate of 1.75% set to increase borrowing costs for companies. These factors pose risk, but they’re not preventing me from buying shares. Mondi (LSE: MNDI), a paper packaging company, is a FTSE 100 stock I’m buying at the moment. 

Recent trading update

There were many positives in the recent half-year Mondi trading update. For example, group revenues increased to €4.5bn, up 37%. This excluded the Russian operations, which are set to be sold in the near future. 

At the same time, the group has dealt exceptionally well with inflationary pressures. Indeed, underlying EBITDA increased 66% year on year to €942m, with very strong margins of 20.9%, up from 17.2% in the same period last year. Basic earnings per share also totalled 148.4 euro cents, up from just 54.4 cents in the prior year. 

The fact that Mondi generates most of its energy needs internally, with biomass sources accounting for around 80% of fuels used in the process, has enabled this resilience. Further, it has also been largely successful in passing on any additional costs to customers. This differentiates Mondi from many other FTSE 100 stocks that have struggled to deal with such pressures. 

The major uncertainty

Despite these excellent results, the Mondi share price still dropped around 5% on the day of the trading update. This was mainly due to one major uncertainty for the company: the Russian business. 

Prior to the Russian invasion of Ukraine, the company generated around 20% of its underlying profits from the Russian entity. However, recognising the group’s corporate values and stakeholder responsibilities, Mondi has decided to sell these operations, and the divestment process is now under way.

Although the assets up for sale amount to around €1.7bn, it’s highly unlikely that the group will receive this price. Therefore, this could lead to asset write-downs in the future and a loss of future earnings. 

Why am I still buying this FTSE 100 stock?

Although the disposal of its Russian operations leads to large amounts of uncertainty, I feel that the rest of the business is still extremely strong. The recent half-year update demonstrated this fact. 

Further, there are many signs that this stock is now a bargain. It has a current price-to-earnings ratio of around 6, implying a major bargain. And the company recently raised its dividend by 8%, meaning Mondi now has a dividend yield of 4%, higher than in the past. For these reasons, I will continue to add Mondi shares to my portfolio. 

The post Down over 25%, here’s a bargain FTSE 100 stock I’m buying  appeared first on The Motley Fool UK.

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Stuart Blair owns shares in Mondi. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.