Clean Q4 EBIT was SEK 58m. The q-o-q effects are likely: SEK +5m from FX, SEK +10m-15m from less maintenance costs, SEK +5m from higher volumes, SEK -25m-30m from higher energy/transport/chemical prices. We arrive at SEK 53m for Q1'22e. Q1 will likely be positively impacted by higher volumes, less maintenance costs and FX q-o-q, while higher costs for energy, transport and chemicals will likely offset the positives. Rottneros will report its Q1 results on 28 April. Pulp prices have risen back to all-time highs and price hikes of ~4% have been announced, which could benefit Rottneros in Q2 (realised with a lag). A weaker SEK is positive too (we estimate that a 10% change in SEK vs. USD has an annualised impact of SEK 120m on EBIT). Note that pulpwood costs are announced up 10% and energy costs are high.
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 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 1.26x vs. 0.8x historically, but we note its earnings are higher vs. history. ATRoCE averaged ~11.7% from ’15-’20, and we estimate ~12.8% 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 2021 ATRoCE points to SEK 15/sh. Mid-cycle valuation points to SEK 8-12/share, while historical margins point to SEK 6-11/share. Overall, ...
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