For the last three months both Pareto and SpareBank have Norske Skog (NSKOG) as a top idea for the month. There has been several positive developments in the last two weeks:
Share overhang removed – over the last few weeks NSKOG went from 34 to 42 NOK. Larger appreciation was limited by the share overhang – the market new that UK based Oceanwood Capital Management that invested years ago is about to reduce its exposure, which has multiplied due to strong share price appreciation over the last few years. They placed the shares on 2/12 through Pareto and entered in to three months lock up. The market suspected the sale would happen which was a break on the stronger share price appreciation. This hurdle has been now removed.
Investor day – the company hosted Investor day on 25/11. It was the first investor day in 15 years they said. The reason was the company believes it has a lot of to say to its investors. I recommend to watch at least the initial presentation by the CEO.
Pareto Securities – Summary of the Investor Day
|Repricing warranted – Buy|
|Norske Skog delivered a CMD in line with expectations, adding colour and clarity on the transition toward growth markets. Expansion projects are on-track and budget. While publication markets are cited tight, enabling NSKOG to include price surcharges and offset costs. Accordingly, we lift 2021-22E, and getting increasingly confidence on a cyclical rebound, which we think will yield 6-7x quarters consecutive EBITDA growth. This coupled with improved revenue mix, growth markets and a greener footprint, margins should rise, and a repricing seems warranted. Buy and NOK 60 TP reiterated, corresponding to ~6x EV/EBITDA’22E vs peers trading at ~8-9x. |
Publication paper market to remain tight into 2022
While the CMD provided limited new information, it added colour and clarity. Expansion projects are on time and budget, set to transform the company and improve the energy mix as well as the environmental footprint. NSKOG is fully financed, and long-term leverage targeted set below 2.0x. Near-term, a tight market balance (and costs) has driven highly necessary increases in publication paper prices. A price uplift larger than previous anticipated.
Estimates upped for 2021-22
We include price surcharges in Europe of EUR 115/t for Q4 (volume weighted) and expect prices to increase further in 2022 (time-lag). For 2021-22E, EBITDA is lifted by 28-12%, respectively. For Q4, we look for an EBITDA of NOK 225m, ahead of consensus of 171m (Bloomberg), and up from NOK 111m in Q3.
Buy and TP NOK 60 reiterated
Q4 is said to be markedly better than Q3 – albeit easy comp. This driven by higher publication prices and should be followed by expansion projects in 2022-23 (Bruck boiler and containerboard). This should provide at least 6-7x quarters consecutive EBITDA growth. An outlook that is not remotely reflected by the share price trading at 4.7x EV/EBITDA’22E (Bloomberg). We say Buy, TP NOK 60, corresponding to 6x EV/EBITDA’22E vs. peers at ~8-9x.
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