CMD: more value-added wood products
Bergs Timber will host a CMD on 8 December. We expect the CMD to be mainly educational and the company is likely to give an update on its growth projects and strategy. Bergs is now a more downstream-focused company with less cyclicality in its earnings and exposure to structurally growing end-markets (building with wood is more environmentally friendly). Value-added wood products (wood protection, joinery) are now 60-70% of its EBITDA. Bergs has identified org. growth investments of SEK 500m for ’21-’23. The investments include SEK 22m to increase its Linax capacity from 5,000m3 to 15,000m3 and SEK 20m to increase its doors/windows capacity by 50%. The company has also acquired the UK based company PTPG, has an interesting partnership with OrganoWood and a 25% ownership in Wood Tube, which could enhance growth.
Performed mostly above its profitability targets
In March, Bergs announced its new strategic focus and raised its growth and profitability targets. It raised its EBITDA margin target to 9% (7%) and has mostly delivered margins above the target the last two years (strong markets for sawn wood and wood protection). Margins have averaged 23% for sawn wood, 18% for wood protection and 9% for joinery in ’21. Bergs focuses on growth and targets annual growth of 10%. Cash flow generation will likely be strong (low maintenance capex), and we see potential to grow organically and via M&A.
Strong price momentum in ’21, but price adjustments likely
Bergs product prices have seen strong price momentum the last year: sawn wood prices increased 140% and wood protection prices followed. EBITDA margins improved from 10% in Q3’20 to 22% in Q3’21. Key sawn goods indicators have shown weakness lately (but note that the US lumber price is up 50% m-o-m). Bergs sees continued good demand, but it expects price adjustments for sawn wood/wood protection and margins to return to more normal levels. Margins for the joinery segment are more stable over the cycle and Bergs sees good order intake for ’22 (sold out for ’21).
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