Q4 EBIT of SEK 58m was below our estimate of SEK 132m. This put 2021 EBIT at SEK 267m, which is a significant improvement y-o-y (higher pulp prices). The deviation from our estimate seems to be driven by lower delivery volumes, lower realised prices and higher costs for energy, transport and maintenance. It also had unplanned production stops in the quarter due to high electricity prices. The EBIT margin decreased to ~10% in Q4 vs. 18% in Q3. The result improved significantly y-o-y, however, due to the sharply higher prices for pulp. The positive effects y-o-y in Q4 were SEK 163m from higher pulp prices/currency and SEK 14m from higher volumes. The negative effects were higher fixed costs (SEK -11m) and higher variable costs (SEK -14m). We lower our ’22 estimates as we expect higher costs.
Pulp prices down 6% in Europe (+15-20% in China)
Pulp prices in China and the US peaked in May and dropped 20-30% in the following months. European pulp prices were stable at USD 1,345/t (all-time highs) from June-Oct’21 but have dropped 6% lately. Note that European prices have followed Chinese prices with a lag. Chinese pulp prices have now turned and are up 15-20%. US prices have followed and are up ~5%. Market pulp shipments have grown by 2-3% p.a., aided by megatrends driving demand for packaging and tissue. Supply growth has been limited in the past years, but supply could grow by 3-5% p.a. in ’22/’23e.
Valuation – fair value range of SEK 10-14/share
Rottneros is trading at an EV/CE of 1.09x vs. 0.8x historically, but we note its earnings are higher vs. history. ATRoCE averaged ~11.7% from ‘15-’20, and we estimate ~12.5% for ‘21-‘23. By using a WACC of 9% and the Q4’21 CE of SEK 1.5bn, we find a fair value of ~SEK 13-14/sh. The 2021e ATRoCE points to SEK 15/sh. Mid-cycle valuation points to SEK 8-12/share, while historical margins point to SEK 6-11/share.
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