Rottneros: Pulp market weakness to continue – ABG


• Q2: Clean EBIT of SEK 57m vs. ABGSCe of SEK 62m
• European pulp prices down -20-40% from the peak
• Fair value range: SEK 8-14/sh

Q2: Clean EBIT -8% below – Q3 will be weaker
Q2 clean EBIT of SEK 57m was -8% below ABGSCe at SEK 62m. Rottneros booked provisions of SEK 16m related to organisational changes at the Vallvik mill, i.e. reported EBIT was SEK 41m. Pulp prices are dropping rapidly, and current prices are -12% lower than the Q2 average, which will likely deduct ~SEK 90m q-o-q in Q3. More maintenance will add additional headwinds, and our q-o-q bridge points towards clean EBIT of SEK -20-40m in Q3. Pulpwood prices are still on the rise in Sweden, but Rottneros will reduce Baltic souring on a better Swedish market balance, which will offset some of the negative effect. We cut underlying ’23/’24 estimates by -31%/-19% on weaker pulp markets for longer.

Pulp markets weaker for longer
Short-fibre pulp is down -40% from the peak, while European longfibre prices (-20% from the peak) will likely find a trough in H2’23. Pulp inventories are at a record high and it could take up to one year to get inventories back to a level that supports a large up-tick in pulp prices again. Pulp capacity additions are plenty (4.5mt in ’23e-’24e, 6-7% of capacity) as well, and operating rates could be under pressure for some time. Rottneros’ restructuring efforts of both Vallvik Mill and Rottneros Mill have cut the headcount by ~20% in less than a year, which improves the cost position. The balance sheet is strong with an equity ratio of 65%, available liquidity of SEK 714m and net cash of SEK 274m. Rottneros can sustain the market weakness better than most peers in the short-term.

Fair value range of SEK 8-14/share
Rottneros is trading at an EV/CE of 0.8x vs. the 10Y historical average of ~0.9x. ATRoCE averaged ~13% from ’17-’22, and we forecast ~6% for ’23e-’25e, suggesting a value range of SEK 8-16/sh. We reduce our fair value range to SEK 8-14 (SEK 10-15)

ABGSC Commissioned Research