Q3 EBIT was SEK 101m. The q-o-q effects in Q4 are likely: SEK 25m-30m from higher pulp prices, SEK 5m from FX, SEK 15m from lower maintenance costs and SEK -15-20m from higher energy costs. We arrive at ~SEK 130m for Q4’21e. Q4 will likely be positively impacted by higher pulp prices (due to lag and price hikes) q-o-q, less maintenance, somewhat higher volumes while higher energy prices are negative. Rottneros will report its Q4 results on 4 February. The company has hedged 90-100% of its electricity usage for ’21-’23, but some impact could occur due to price deviations between the system price and the electricity area SE 3 (where it has most of its production). Note the large FX sensitivity: we estimate that a 10% change in the SEK vs. the USD has an annualised impact of SEK 120m on EBIT.
Pulp prices down 6% in Europe (+15% 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. Chinese pulp prices have now turned and are up 15%. European pulp prices are still at a high level compared to the prices in China (followed the Chinese prices with a lag) which could put pressure on European prices. 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 1.06x vs. 0.8x historically, but we note its significantly higher earnings vs. history. ATRoCE averaged ~11.7% from ‘15-‘20 and we estimate ~14% for ‘21-‘23. By using a WACC of 9% and the Q3’21 CE of SEK 1.45bn, we find a fair value of ~SEK 12-15/sh. Our 2021e ATRoCE points to SE
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