NorsKe Skog – cheap vs peers, renewables activities for free

I wrote here several times about NSKOG. I am long and I like the story. It is cheap vs peers and its green itiatives at valued at zero. Pareto analyst believes the green intiatives have value equal to its mkt cap. It is cheap. And it is very cheap when paper prices are raising as global paper production capacity is decreasing. ABG belives NSKOG is a takeover candidate. See older posts for details on the above.

Today NSKOG annouunce investment decision on paper capacity conversion into renewable cardboard that is in high demand. See the summary below

On route to become a leading European recycled containerboard producer
NSKOG has made the final investment decision to convert one paper machine at the Golbey (France) site from standard newsprint to recycled containerboard. This is the second site NSKOG will convert (follows Bruck, Austria) and an important step to become a leading recycled containerboard supplier in Europe. The conversion at Golbey will add a further 550kt of cost-competitive and low-emission capacity, starting in Q3’23 – about a year after Bruck. The production will be 100% based on recycled fibre and green energy generated from a new biomass plant at the site. This will bring NSKOG’s total containerboard capacity up to 760kt. The investment is estimated at EUR 250m, fully financed (i.e. 70% debt, 30% cash), and expected to generate EBITDA NOK 700-800m p.a. based on historical prices. Also, conversion will reduce NSKOG’s publication capacity, thus contributing to balance the market, and increase exposure to containerboard which is a growing market (2-3% growth rate). Based on our SOTP, no value seems to be reflected besides the legacy publication business trading at 4.1x EV/EBITDA’21E (consensus). We reiterate Buy, TP NOK 50.

Fully financed – capex 70% debt financed, remaining covered by cash on balance

NSKOG today announced the final investment decision to convert one machine at the Golbey (France) industrial site from standard newsprint to recycled containerboard. Link. NSKOG will invest approx. EUR 250m in the conversion of Golbey PM1, and a syndication of financing facilities of approximately EUR 175m is being finalised, subject to final documentation and final approval from the relevant export credit agency (i.e. 70% debt financing). The remaining investment amount will be covered by cash on balance and cash flows from operations.

Containerboard EBITDA potential of NOK 700-800m based on historic prices
Recycled containerboard production at Golbey PM1 will start in Q4’23, about one year after the start- up of the Bruck PM3, allowing for stepwise commercial introduction of the containerboard volumes. Full production of 550kt of lightweight testliner and fluting is expected in H2’26, allowing for a normal start-up curve. In parallel, Veolia Industries Global Solutions and NSKOG, will construct a green energy biomass facility adjacent to the Golbey industrial site. This facility will provide cost-efficient and sustainable steam to be used for both containerboard and newsprint production. In total, 760kt containerboard capacity (i.e. Bruck and Golbey) should generate an EBITDA of ~NOK 700-800m p.a. from 2025/26, based on historical trend prices for containerboard and recycled fibre.

Buy, TP NOK 50 reiterated
The conversion of Golbey is an important step towards sustainable and growing markets, supporting valuation and the long-term potential. The former should crystalize as the market moves out of the trough and profitability for NSKOG’s legacy business improves (H2’21 with higher publication prices). Valuation is undemanding, trading at ~4.1x EV/EBITDA’22E (incl. the 26% stake in Circa) at consensus estimate (3.7x excl. Circa). Our SOTP of NOK 63/share, leaves ~75% upside to the share price. We expect a positive earnings trend into 2022, and more project updates throughout the year. We thus find the upside attractive, and reiterate Buy and TP of NOK 50/share

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