ABG on Norske Skog – “ Very large price increases for ‘22”

I am bullish Norske Skog (NSKOG) for some time. During the last two months both Pareto and Sparebank listed NSKOG in their monthly TOP IDEASES for Norway. ABG is increasingly bullish too. Pls find below a front page summary of their 20 page report on NSKOG:

Norske Skog
Very large price increases for ‘22


Q3 was better – very large paper prices hikes into ‘22
Clean EBITDA of NOK 111m was 23% above Infront consensus as higher paper prices added NOK 195m q-o-q while higher RCP/energy costs deducted NOK 163m. In addition, the utilization rate was 95%. Newsprint prices rose 17-18% in Q3 and have been announced up another ~27% due to very high RCP/energy costs and tight paper markets in Europe. Our MTM points to ~NOK 2bn for Norske Skog if we include the announced price hikes. Gas prices have shot up and Norske buys 1.1 TWh of gas at the Bruck site. This is negative short-term, but the gas bill should be much lower from Q2‘22 when the Bruck energy boiler starts up. The CO2-related payments could rise NOK 300-400m into ’22/’23e on higher CO2 prices.

A pipeline of growth projects; SOTP ~NOK 65-80/share
Norske Skog has several growth projects in the pipeline that could more than double EBITDA. The key projects are paper to packaging conversion and the new waste-to-energy facility, which could add NOK 70m and NOK 200m, respectively. We arrive at a discounted value of NOK 65/sh. Approximate values would be NOK 30/sh for the paper assets, NOK 24/sh for the packaging conversion and NOK 12/sh for the waste-to-energy facility. This calculation does not include the potential from its other projects. We find an SOTP value of ~NOK 80/sh if we also include the potential values from the remaining projects (Cebina, Circa, pellets).

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My NSKOG Investment thesis summary:

  • NSKOG 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.
  • NSKOG’s renewable asset portfolio has a higher value than NSKOG current market capitalization
  • Newsprint plant closures are pushing prices higher that should multiply NSKOG profitability. It is already happening and should accelerate further into 22.
  • 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.

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Disclosure: 

The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice.

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