Modernization And Sustainable Packaging Will Drive Efficiency Despite Industry Oversupply

Key Takeaways

• Structural cost reductions, asset modernization, and efficiency projects are expected to boost margins and provide long-term earnings growth.
  
• Market and regulatory trends toward sustainable packaging favor cartonboard, supporting growing demand and opportunities for expanded market share.
  
• Prolonged overcapacity, volatile costs, restructuring risks, external competitive pressures, and weak demand threaten sustainable revenue growth and margin stability.

Catalysts

Manufactures and sells cartonboard and folding cartons in Germany, Austria, and internationally.

• The company's Fit for Future program targets more than €150 million in sustainable cost savings by 2027 (about 5% of the cost base), with tangible effects already in 2024 and further incremental improvements expected through 2026; these structural reductions in procurement and operational costs should directly drive higher EBITDA, improved net margins, and ultimately higher earnings.
  
• The recent divestiture of the non-core TANN business at record earnings has provided significant one-time cash proceeds and increased financial flexibility, allowing Mayr-Melnhof Karton to reinvest in value-added packaging, modernization, and efficiency projects-capabilities that support both top-line growth and long-term margin expansion.
  
• Ongoing investments in plant modernizations and energy efficiency (e.g., projects cutting mill energy consumption by 20% by end-2026) position the company to maintain cost leadership and mitigate input cost pressures, stabilizing gross margins and creating operational leverage for future profit improvement.
  
• Industry capacity is showing early signs of rationalization, with mill closures in Finland and Spain, and further capacity reductions likely as financially weaker competitors confront losses and overdue asset maintenance; this expected tightening should eventually restore supply-demand balance and enable price recovery, supporting revenue and margin uplift for more robust players like Mayr-Melnhof Karton.
  
• Persistent global trends toward sustainable, recyclable packaging-driven by regulation and consumer preferences-continue to favor cartonboard solutions over plastics, underpinning steady long-term demand growth and expanding the company's addressable market, especially as e-commerce and urbanization increase the need for packaged goods, thus supporting sustained top-line growth.

Mayr-Melnhof Karton Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mayr-Melnhof Karton's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.8% today to 3.9% in 3 years time.
• Analysts expect earnings to reach €162.2 million (and earnings per share of €9.88) by about September 2028, down from €235.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 6.6x today. This future PE is greater than the current PE for the GB Packaging industry at 6.6x.
• Analysts expect the number of shares outstanding to decline by 1.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Mayr-Melnhof Karton Future Earnings Per Share Growth

Risks

• Persistently high overcapacity in the Board and Paper division, with only marginal improvement and excess capacity remaining in the market, risks prolonged pricing pressure and reduced revenue growth.
  
• Ongoing raw material and input cost volatility-particularly in waste paper and wood-combined with difficulty fully passing these increased costs to customers, threatens to erode net margins and operating profit, especially as recent margin improvements relied primarily on aggressive cost-cutting initiatives.
  
• The company's cost-saving and efficiency program ("Fit for Future") involves ongoing footprint adaptations and operational restructuring, introducing the potential for increased restructuring costs and workforce reductions, which may compress near-term earnings and impact employee morale and operational stability.
  
• Exposure to secondary effects of global trade barriers, such as US import duties, may lead competitors to redirect capacity into Europe, exacerbating oversupply and intensifying competition, which would likely result in revenue and profit headwinds.
  
• Continued weak and flattish end-market demand in core segments such as food and personal care, limited visibility on order book recovery, and delays in fully realizing the benefits from capital investment projects create uncertainty around sustainable revenue growth and long-term earnings momentum.

Valuation

• The analysts have a consensus price target of €93.9 for Mayr-Melnhof Karton based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €115.0, and the most bearish reporting a price target of just €82.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.2 billion, earnings will come to €162.2 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of €79.3, the analyst price target of €93.9 is 15.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.