Bergs Timber
Bergs Timber - Q2 likely better than previously feared (ABG Sundal Collier)
2020-07-20 21:00
Q2 likely better than feared; cash flow will be strong
Transformation cont.: less cyclicality, better cash flow
Trading at run-rate EV/EBITDA of 6.5x, or lower post-sale
Q2 EBITDA likely better than feared; cash flow will be strongWe estimate Q2’20 EBITDA of SEK 56m, up from SEK 50m in Q1’20. April was likely a soft month due to production curtailments but demand was very strong in May/June, resulting in strong production and sales in the remainder of the quarter. We expect sawmilling EBITDA of SEK 30m, down from clean EBITDA of SEK 35m in Q1, on lower production and FX. We see Further Processed EBITDA of SEK 25m. Cash flow is likely to be very strong in Q2 driven by a significant destocking. The Q2 report is due on 31 July.
Creating a less cyclical company with strong cash flow
Bergs recently announced the sale of its Swedish sawmills for SEK 400m (EV/EBITDA 7-8x). The rationale for the deal is strong: 1) It reduces Berg’s sawmill exposure by ~55%, reducing the cyclicality of its earnings, 2) the remaining assets are modern and well-invested (maintenance capex of ~SEK 30m vs. depreciation of ~SEK 70m), i.e. Bergs will have strong cash flow that it can use to invest in growth (organically or via M&A), 3) Further Processed will now make up the majority of sales and EBITDA. Further Processed has 7-9% EBITDA margins, vs. sawmilling at 4-5% on average for the past 10 years. Margins are also more stable over the cycle. It targets to grow up to 10% p.a. in this segment and there are ample growth opportunities both organically and through M&A.
New Bergs likely trading at run-rate EV/EBITDA 6.5x or lower
We await pro forma company figures before we update our estimates to reflect the divestment. Hence, we advise investors to focus on our est. run-rate EBITDA (see more on pages 3-4), instead of our official ’21-’22 estimates. After the divestment, net debt will likely drop below ~SEK 150m (from ~SEK 700m), i.e. net debt/EBITDA will be <1.0x, enabling growth via m&a. the “new” company likely has a run-rate ebitda of at least ~sek 160m, i.e. an ev ebitda of ~6.5x. however, considering the recent strong market for wood products, this might be on the low side.>
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