EBIT was SEK 30m, which compares to our estimate of SEK 63m. The miss was mainly driven by negative mix effects (higher deliveries of CTMP, which has had lower price increases compared to NBSK). Note that Rottneros booked an impairment loss of SEK -5m, which would arguably put clean EBIT at ~SEK 35m. Q3e will likely be stronger than Q2 given that the annual maintenance stop at Rottneros Mill has been moved to Q4 (initially expected for Q3). Higher pulp prices should provide further tailwinds. We expect Q3 clean EBIT of SEK 50m-65m.
Pulp prices at ATHs, but may have peaked short-term
Pulp remains in good shape (strong demand/less supply growth). European softwood and hardwood pulp prices are at ATHs, and are up 42% and 80% from their respective troughs, while Chinese softwood and hardwood prices are up 22% and 60%. Prices may have peaked short-term, however, due to recent triggers (reduced Chinese demand, the restart of Finnish mills, more supply from Suzano, lower futures). Pulp shipments have shifted into more negative territory, +2% Apr-May (shipments to China -14%, ROW +12%). Demand growth will likely outpace supply growth, as '24 should see net supply growth of ~2%. As such, we expect operating rates to improve in '24e vs. '23 (~89%). Rottneros is constantly striving to broaden its revenue base, and has achieved its target of raising the percentage of earnings derived from less cyclical sectors to ~10% (vs. 3% in '19).
Fair value range of SEK 9-16/share
Rottneros is trading at an EV/CE of ~1.0x, which compares to the 10Y historical average of ~0.9x. ATRoCE averaged ~12% from ’18-’23, and we forecast ~8% for ’24e-’26e, suggesting a value of ~SEK 9/sh. Note that a mid-cycle valuation approach points to ~SEK 13/sh. Uncertainty is high — fair value range of SEK 9-16.
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