Arctic Paper: An arctic breeze from the Swedes - ABG
* Q4 Paper EBIT of ~PLN 25m * Lower wood costs ahead, but markets still soft * Fair value range of SEK 17-50
ANNONS
Q4 Paper EBIT of ~PLN 25m
We expect Q4 Paper EBIT of ~PLN 25m, up from PLN 16m in Q3. However, note that this figure includes an energy refund of ~PLN 40m, i.e clean Paper EBIT is likely PLN -14m. We have observed soft Q4 volumes, and we factor in a 5% reduction in realised prices to compensate for lower demand, implying a q-o-q price effect of ~PLN -29m. We have cut our estimates for '25e-'26e sharply, solely driven by Rottneros' profit warning which showed Q4 results far below expectations with EBITDA of ~SEK -180m, putting EBIT at ~SEK -217m (~PLN -84m). For Arctic Paper, this puts Q4 clean EBIT at ~PLN -100m (reported ~PLN -60). For '26e, we lower our Pulp EBITDA to PLN 11m, down from PLN 42m, in line with our current MTM EBITDA for Rottneros. While lower pulpwood costs will help, the weak FX will offset some of the effects and be a drag in '26e. Our Paper estimates (i.e. Arctic Paper) are up ~3%, given the recent announced price hike.
Lower wood costs ahead, but markets still soft
Pulpwood prices are dropping 25-30% across Scandinavia as high inventories and low demand pressure the market. This should provide some cost relief. Paper markets are helped by 10% supply cuts in '25-'26e, but with (too) low demand the utilisation rate is only 75-80%. We need 3mt more cuts to reach the historical average. The pulp market has had its short-term issues, but Suzano has hiked hardwood prices seven times, or +26%. Rottneros' exposure mainly lies within softwood and CTMP, which has lagged hardwood. However, SCA's recent USD 100/t NBSK price hike is good news for Rottneros, which could also see prices up in '26.
Fair value range of SEK 17-50
The company is trading at an EV/CE multiple of ~0.45x, which is ~40% below its historical average. We have applied three valuation methodologies and arrive at a fair value range of SEK 17-50.
