Rottneros: Weaker pulp markets - ABG

Q1e: EBIT of SEK 90mChinese NBSK import price down ~20% YTDFair value range: SEK 10-15/sh (11-16)Q1e: Still some cost pressure from pulpwoodWe expect Q1 clean EBIT of SEK 90m, which compares to SEK 145m in Q1'22 and SEK 61m in Q4'22. The q-o-q effects are likely: SEK +80m from maintenance/volume/mix effects, SEK +10m from lower chemical costs, SEK +10m from lower personnel expenses, SEK -35m from higher wood costs, SEK -25m from lower prices net of hedging and SEK -10m from FX. We thus arrive at Q1 clean EBIT of ~SEK 90m. Cost pressures persist for Rottneros, as pulpwood costs will increase in H1'23 vs. H2'22. The company closed the groundwood production line at the Rotternos mill in Q4 (~60kt with low profit contribution), but will likely add ~30kt of new CTMP capacity in the coming year. We reduce our '23 estimates by ~15% on weaker pulp markets and persistent cost pressures.Chinese NBSK import price down ~20% YTDEuropean pulp prices have dropped -10% from the peak in Q3'22 and -5% since YE'22. The current list price is 1,350 USD/t. However, the Chinese NSBK import price is down ~20% YTD, and pulp futures are down an additional 6-7pp. Pulp demand has deteriorated materially (European pulp shipments down -11% y-o-y in February), as demand for all paper and packaging grades is weak. As well, inventory destocking in the value chain further boosts the volume pressures in the short term. To align with lower prices, higher costs and a stronger USD, Rottneros gave notice of redundancy to 24 employees at the Vallvik Mill in April.Fair value range of SEK 10-15/shareRottneros is trading at an EV/CE of 0.9x, which is in line with the 10Y historical average. ATRoCE averaged ~13% from ’17-’22e, and we forecast ~9% for ’23e-’24e. By using a WACC of 9% and the Q4’22 CE of ~SEK 1.9bn, we estimate a fair value of ~SEK 15/sh. The mid-cycle valuation points to SEK 8-12/share. Fair value range SEK 10-15 (11-16).Läs mer på ABG Sundal Collier