Pareto: “Norske Skog is trading at 4x EV/EBITDA vs peers at 8-9x. Publication paper markets are tight and prices rising. Making us increasingly confidence on a cyclical rebound. This coupled with diversified revenue mix, growth markets exposure and a greener footprint moving closer – a repricing of NSKOG seems warranted.“
Q4 EBITDA is due to almost triple vs Q3
Pareto increased its Q4 EBITDA adj. of NOK 300m, up from previous NOK 225m estimate and vs NOK 111m in Q3, ahead of consensus of NOK 220m (Bloomberg). Publication paper prices are lifted ~20% across all grades (including energy surcharges) and should more than compensate for raw material and energy costs.
Pareto increased its Price target to 70 NOK
Pareto Securities on NSKOG today:
“A revaluation seems due to come if NSKOG delivers on expansion projects. Projects that are reported on- time and budget and should tilt the company toward growth markets and provide earnings uplift. While the outlook for publication paper has improved, and earnings uplift is due to be reflected in 2022, we think. Though, the equity market is not yet there – as NSKOG trades at ~4x EBITDA’22E vs. peers at 8-9x. Buy reiterated, TP NOK 70 (60), ~15% discount to our SOTP.”
Please note that SpareBank published research on NSKOG where they estimate NSKOG reaching 100 NOK per year. See our report on this here:
NSKOG due to report Q4’21 results on 4 February at 7:00 CET
That is a bit more than 2 weeks from now. We are seeing strong broker updates on the stock. Sparebank has issued three updates on NSKOG last week. Other brokers will rush with their updates too. NSKOG share price momentum before the Q4 report should accelerate on positive broker updates.
Why we 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%.
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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