• Q1e: Clean EBIT of PLN 87m
• Paper is improving – better demand and 10% supply cuts
• Fair value range of SEK 40-80 per share

Q1e: Paper volumes are picking up, but so are pulp prices

We expect Q1 Paper EBIT of PLN 87m, down from PLN 98m in Q4'23. The main effects q-o-q are likely: PLN -11m from FX (paper prices flat), PLN +45m from better volumes, PLN -41m from higher pulp prices (NBSK +12%, BHKP + 25%, with 1m lag) and PLN -4m from higher chemical costs. Pulp EBIT will likely be PLN 40-50m better q-o-q, driven by higher pulp prices and volumes. Hence, we expect Q1 group EBIT of PLN 99m vs. PLN 67m in Q4'23. We expect Q2 Paper EBIT of PLN 70-80m, driven by higher pulp prices.

Paper is improving – better demand and 10% supply cuts

The paper market was weak in '23 with a utilisation rate of ~70%, but capacity cuts and better demand point to an improving market in '24e. Announced capacity cuts are ~10% vs. 3% in '23 (~3mt in '24e-'25e). Combined with the improved demand seen lately (+10%) and as suggested by our demand model, the utilisation rate could reach 79-80% in '24e. However, if the demand increase of +10% persists throughout the year, the utilisation rate could be closer to 85-90%. Early-cyclicals (pulp, containerboard, lumber, fine paper) have a long list of price hikes, and while paper is late-cyclical, the price decline is abating and our leading indicator points up. Arctic Paper is well-positioned, as it is a leading premium design/book paper player, with an overall decent position on the cash cost curve.

Fair value range of SEK 40-80

The company is trading at an EV/CE multiple of ~1.03x and a '24e EV/EBIT of 4.5x. We apply three valuation methodologies, and we arrive at a fair value range of SEK 40-80. The fair value range implies an EV/CE range of 0.7x-1.5x, or a '24e EV/EBIT of 3x-6x.