Sparebank on Norske Skog – Newsprint prices up 15%-20%. Share priced did not move, yet

Sparebank believes the Norske Skog share price should be three times higher. NSKOG is my favorite restructuring play. NSKOG has four levers for share price growth:

  • it is very cheap vs its peers – see below Sparebank: “if valued in line with peers, we argue that a fair price is closer to NOK 100”
  • its renewable asset portfolio has a higher value than the whole market capitalization
  • newsprint plant closures are pushing prices higher that should multiply NSKOG profitability
  • renewable assets come into production next year (mainly renewable packaging), that should significantly improve profitability further

SpareBank published research on Norske Skog today. Below is their front page summary:

Newsprint and containerboard prices up 15-20% and marginal change up for input costs

Power compensation alone could increase EBITDA with NOK250m, but political uncertainty (not included in estimates)

The closures of capacity have rebalanced supply demand and according
to our knowledge, newsprint prices in Europe has had an material
increase in July. Q2 was a disappointment due to higher costs for
recovered paper (RCP), but RCP prices have been flat the last month.
Cost increases are front-end loaded.

The effect of the closures and hence increased utilisation have
according to our knowledge led to a material increase in prices for
newsprint in Europe. Our take is that the share prices for peers to
NSKOG have increased the last month due to this price increase with
NSKOG lagging peers. The enterprise value of NSKOG is small compared
to peers and NSKOG has a large investment programme starting in Q3
2021, but still we argue the disconnect to peers is unwarranted.

Overall, we expect prices for NSKOG will increase 15% compared to Q2
2021 for Q4 2021 and around 10% in Q3 2021 as some contracts will
have price increases later in Q3 2021. From Q4 2021, with 15% price
increase, flat RCP prices and higher gas prices, we expect NSKOG to
deliver an annualised EBITDA close to NOK1bn. If valued in line with
peers, we argue that a fair share price is NOK closer to NOK100
. The
conversion to containerboard is in our mind a step towards being
valued in line as a going-concern. As the majority of the current
portfolio for NSKOG is exposed to a declining market, we value NSKOG
based on a “5% decline in demand” scenario and view NOK50 as a fair
target price.

We recommend buying NSKOG ahead of the Q3 numbers as we expect
this quarter will show the effect of increased utilisation/prices and the
path to a NOK1bn EBITDA scenario.

Interesting article on Hofseth Biocare

See my Friday blog on HBV. Pls also see the investment story on HBC. The company is now growing over 50% yoy. The growth is likely to accelerate further. Quite interesting opportunity. I am long HBV.

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