…but shortage of industrial pellets pushes up prices
Trading at ~25% below home improvement peers
Countercyclical portfolio mitigates risk
In contrast to Wood Protection and Sawn Wood, which have their best two quarters in Q2 and Q3, the Joinery segment and Other segment mitigate the operational cyclicality, as 1) the Joinery segment is more stable over the cycle, and 2) Bergs’ pellets operation (part of the Other segment) is most profitable in Q4-Q1. Looking at operational costs, energy costs are only a small part of the total cost base, while a potential increase in wages would hit the company worse.
Small estimate changes for the group
We make limited estimate changes to Bergs Timber of +/- 1% prior to its Q3 report. We have lowered our estimates within Wood Protection (37% of last 12m sales) by 4-3% in ’22-’23e due to higher raw material costs and lower DIY demand. We believe this decline will be mitigated by an approximately equivalent increase in the Other segment. This increase is due to a shortage of industrial pellets in Europe, explained mainly by canceled gas/oil deliveries from Russia and increased demand for non-fossil energy sources.
Slower growth, less geared and lower valuation vs. peers
Bergs Timber is trading at ~6x EV/EBIT in ‘23e, below the average of home improvement peers at ~8x and sawmill peers (Holmen and SCA) at ~17x. Meanwhile, Bergs is growing slower (negative EBIT CAGR ’21-‘24e) compared to peers, which are growing at ~5% (home improvement peers) and ~12% (sawmill peers). Simultaneously, its net debt/EBITDA is ~0.6x compared to peers at ~1.3x (home improvement peers) and ~0.5x (sawmill peers). The company will release its Q3 figures on 27 October.
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