Norske Skog – up 23% in January, More to Follow

I wrote 4x about Norske Skog in January. The idea seems sound, up 23% in January. I believe we are still early innings. Norkse Skog (NSKOG) is reporting its Q4 numbers this Friday.

NSKOG should appreciate both before the event as well as after the event. Most banks already increased their price targets by now. There will be another wave or research updates after the report.

Pareto included NSKOG for their 10 Top Picks for February. Pareto has a price target of 70 NOK vs today share price of about 47NOK. Even at 70NOK NSKOG would cheap – 70NOK corresponds to ~6x EV/EBITDA’22E vs. peers at 8-9x.

You can read about other brokers recent updates on NSKOG in prior posts here.

Pareto reasoning for NSKOG in February Portfolio

NSKOG (Norske Skog) rose 22.9% in January after publication prices reached
historic heights in Europe amid extremely tight markets. Supported by Q4
guidance from peers, which included improving margins for 2022

NSKOG – BUY, TP NOK 70
We keep NSKOG in our monthly portfolio as we expect improving fundamentals to secure a solid earnings uplift in Q4. Publication paper prices have reached historic hights amid extremely tight markets, expected to more than offset soaring input costs. This makes us increasingly confident that earnings growth will carry-on into 2022, seeing potential for at least 6x consecutive quarters with EBITDA growth ahead. The key remains the transformation process, which we think is on-track and budget for start-up in 2022. With improved revenue mix, margins should rise, and a further
repricing is warranted. We have a Buy and TP of NOK 70, corresponding to ~6x EV/EBITDA’22E vs. peers at 8-9x.

Why we like NSKOG:

  • Strong paper prices should cause the EBITDA to triple 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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