Q1 EBIT of SEK 145m was strong and above our estimate of SEK 53m. EBIT increased 150% q-o-q. The deviation from our estimate seems to be driven by higher realised prices in the quarter. The EBIT margin increased to ~22% in Q1 vs. 10% in Q4. The result improved significantly y-o-y due to the sharply higher prices for pulp. The positive effects y-o-y in Q1 were SEK 162m from higher pulp prices/currency and SEK 2m from higher volumes. The negative effects were higher variable costs (SEK -19m), higher fixed costs (SEK -11m) and other (SEK -1m). We raise our ’22 estimates due to the strong report.
Pulp prices back up to all-time highs
European pulp prices have returned to all-time highs (after dropping ~6%) and Chinese pulp prices are up ~42% since November. Suzano (a global pulp leader) and SCA have announced price hikes of ~4% in the EU (10-15% in Asia). Note that our leading indicator for OECD IP growth points down and pulp prices usually follow IP growth with a lag. 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 few years, but could grow by 3-5% p.a. in ’22/’23.
Valuation – fair value range of SEK 10-15/share
Rottneros is trading at an EV/CE of 1.17x vs. 0.8x historically, but we note its earnings are higher vs. history. ATRoCE averaged ~11.7% from ’15-’20, and we estimate ~12.7% for ’22-’24. By using a WACC of 9% and the Q1’22 CE of SEK 1.7bn, we find a fair value of ~SEK 15/sh. Mid-cycle valuation points to SEK 8-12/share, while historical margins point to SEK 6-11/share. Overall, we set a fair value range of SEK 10-15.
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