Norske Skog: Carnegie almost doubles its price target

Last week NSKOG was put on Top Ideal list for Septermber by Pareto and SpareBank. Sparebank believes the Norske Skog share price should be three times higher. Yesterday, Carnegie joined the NSKOG bulls with doubling its price target.

Carnegie brings another component into its valuation. NSKOG transformation into green products will increase the amount NSKOG will get for CO2 permits. Carnegie estimates, that over the next five years (including 2021) the company will collect EURO 260 mln for its CO2 permits. Carnegie also calculates that from 2022 the CO2 permits revenue will double to around EURO 60 mln from current about EURO 30 mln. This is material given NSKOG current market capitalisation of around EURO 300 mln.

I have been long NSKOG for some time and wrote here about it several times. For me the investment thesis is simple:

  • it is very cheap vs its peers –  Sparebank research stated : “if valued in line with peers, we argue that a fair price is closer to NOK 100” that is 250% above its current share price.
  • its renewable asset portfolio has a higher value than NSKOG current 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
  • Doubling income from selling CO2 permits from 2022 to EURO 60 mln per year should improve profitability materially.

Summary of Carnegie Research on Norske Skog

In focus: Transformation – here we come

In this In Focus report we have taken a closer look at Norske Skog’s CO2 emission rights sales, its CO2 compensation, the effect from the Bruck boiler and energy costs in general. Furthermore, we have now included the forthcoming EUR350m capacity conversion of 360kt of newsprint to 760kt of containerboard into our valuation. In short, the net effect of
these factors increases our target price to NOK72 (47).

While Norske Skog in mid-2020 guided for annual EBITDA of EUR75m when containerboard production was fully operational, m-t-m EBITDA now stands at more than EUR210m, given the price increases since then. In our estimates, we have landed at EBITDA of around EUR120m, which equates to an unrisked value per share of NOK40–64, based on an EV/EBITDA multiple between 6–8x and discount rate of 8–12%.

Though EBITDA in 2021e, particularly H2, is negatively impacted by escalating energy prices, we estimate that the Bruck boiler (through a significant cut in gas consumption and 150kt higher net CO2 sales) will increase EBITDA by around NOK400m in 2023 versus 2021e. We now include specific value forecasts for containerboard and the Bruck boiler, which we have risked by 33% and 75%, respectively. This adds NOK24 per share to our NOK48 per share valuation of the remaining business

See last week posts on this blog for summaries of Pareto and Sparebank research on Norske Skog

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