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Rottneros
Rottneros - Decent quarter, Q4 likely better (ABG Sundal Collier)
2021-10-24 22:42
Q3 EBIT at SEK 101m
Pulp prices down 13-20% in China and the US
Fair value range of SEK 10-14/share
Q3 EBIT was SEK 101mQ3 EBIT of SEK 101m was below our estimate of SEK 119m, but still a strong number. The deviation from our estimate seems to be driven by lower delivery volumes (maintenance) and lower realised prices. It booked more maintenance costs in Q3 vs. our expectations i.e. less maintenance costs for Q4. It also had a production stop at its groundwood pulp line in the quarter (also in October) due to very high electricity prices. Its realised price rose 7% q-o-q and the EBIT margin increased to ~18% (16% in Q2) despite significantly higher maintenance costs q-o-q. The positive effects y-o-y were SEK 147m from higher pulp prices/currency, SEK 11m from lower variable costs and SEK 2m from Other. The negative effects were higher fixed costs (SEK -24m) and lower volumes (SEK -39m) due to no maintenance in Q3’20. Note that pulpwood prices are at a quite low level, which is positive for Rottneros.
Pulp prices down 13-20% in the US and China
The positive price momentum seen in the last year has turned. European pulp prices have been flat in the last four months, while US/Chinese pulp prices are down 13-20% from the peak. Note that European prices have followed Chinese prices with a lag. Pulp prices tend to follow OECD IP growth, and IP growth is down. Market pulp shipments have grown by 2-3% p.a. aided by megatrends driving demand for packaging and tissue. Supply growth of -0.4% in ’21 does not seem problematic, but supply could grow 4-5% p.a. in ‘22/’23.
Valuation – fair value range of 10-14/share
Rottneros is trading at EV/CE of 1.06x vs. 0.8x historically, but we note its significantly higher earnings vs. history. ATRoCE averaged ~11.7% from ‘15-‘20 and we estimate ~13.9% for ‘21-‘23. By using a WACC of 9% and the Q3’21 CE of SEK 1.45bn, we find a fair value of ~SEK 12-14/sh. Our 2021e ATRoCE points to SEK 18/sh. Mid-cycle valuation points to SEK 8-12/sh, while his
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