Sparebank on Norske Skog: “the share price could increase to 100+ NOK”

Today share price is 40 NOK. Sparebank is arguing for 100+ NOK.

Both SpareBank and Pareto have Norske Skog as a top pick in their monthly top ideas. I am not sure, if any other share is in both top list ideas.

Summary from SpareBank note on NSKOG from 12/1/22:

NORSKE SKOG: To cover its rising energy coast NSKOG is currently adding a 125EUR/mt surcharge on LWC paper and 95EUR/mt on newsprint shipments for Q1. Our take is that these surcharges will be accepted by the market due to its tight market-balance.

We lift our estimates and expect consensus to follow. Adjusting for an estimated increase of about 130m NOK in gas/electricity and recovered paper (RCP) costs for Q4 – Q1’22 we estimate an annualized run-rate EBITDA of ~1,600m NOK.

Our quarterly cash flow estimates are in our mind in line with NSKOG’s implied estimates in the Capital Markets Day presentation. In a going-concern scenario we argue that the share price could increase to 100+ NOK. The share is trading at 39 NOK. A 100 NOK scenario increases the market cap with ~5.75bn NOK and the conversion capex is estimated to be 3.5BN NOK

Why I like NSKOG:

  • Strong paper prices should cause the EBITDA to tripple in 22 vs 21. Sparebank estimates EBITDA would increase from 500 mill NOK to 1600 mil NOK. EBITDA margin should increase from 4% to 13% over the two years.
  • NSKOG is cheap vs peers. Under Sparebank estimates NSKOG trades at 4.2x 2022EBITDA vs 9.5x 2022EBITDA for the peers.
  • Pareto estimates that the renewable portfolio has the same value as NSKOG current market cap. I do not believe the mkt gives NSKOG any credit. Its waste to energy plants comes into operation in five months. That should cause recognition of this value by investors.
  • The mkt gives NSKOG no credit for significant CO2 permits revenue – Carnegie estimated the CO2 permits revenue between 45-60million EURO. That was done when permits were around 60 EURO. The permits are around 90 Euro, If you recalculate this to current CO2 prices, the next year CO2 revenues would be 60-80 Million EURO. That is very material for 350 million EURO market cap. For comparison SpareBank estimates that next year paper EBITDA would be 100 million EURO. CO2 Permits could increase the EBITDA by 60-80%.

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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. Please do your own research before making any investment action.

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