Norske Skog – EBITDA up 400% QoQ, prices up 35% MoM in January

Norske Skog (NSKOG) earned 10% of its market cap in Q4. That is 40% annualised. Paper prices are up 35% in January vs December. More capacity closures by competitors announced for 2022 and 2023 which should maintain prices high for the period. NSKOG waste to energy plant is in comissioning now, and should be in full operation in Q2, which is very bullish. Cardboard conversion on track for Q4 start. All good news from NSKOG this morning. Expect wave of broker price targets updates next week.

I wrote here four times about NSKOG in January. The share price was up 23% in January even in the bad markets. The appreciation should continue. The stock could double this year if the company continues delivering this way.

Brokers published their results summaries:

Pareto Securities

Q4’21 first take – Massive EBITDA beat, earnings uplift for 2022E 
NSKOG delivered Q4 EBITDA adj. of NOK 422m, up 189% y/y, and 59% above cons. of NOK 266m (PAS NOK 300m).Improved prices are the main positives, compensating for rising energy and raw material costs. Solid cash flow, and cash at balance of NOK 1.5bn. Outlook includes prices uplift across all products into Q1 and 2022, as the market for publication paper is cited extremely tight. The latter reflected by 96% utilization ratio for NSKOG’s European publication production. The waste-to-energy plant is in commissioning and on-track for takeover from Valmet in two months, due to contribute with >NOK 200m p.a. EBITDA. Containerboard projects on time and budget due for production in Q4’22.

Outlook reflectsimproving industry operating rates and a tight publication paper market, due to secure further price uplift in 2022. As proven by Q4 results, NSKOG is on path toward more normalized earnings for legacy business, while new projects should drive EBITDA higher.

We will lift estimates following the report and the share price should rise today. We reiterate Buy, andTP of NOK 70.

Norske Skog (Buy): A very strong report 
Norske Skog reported an EBITDA of NOK422m, 83% above our expectations and 59% above consensus. Both Europe and Australasia way above expectations. In Europe, EBITDA landed on NOK395m (Carnegie estimate NOK 236m). The deviation is foremost due to higher achieved prices (around 5% we estimate) but also slightly lower costs. In Australasis EBITDA totalled NOK46m (Carnegie NOK 1m). The deviation solely due to higher prices, which we admit, has gone totally under the radar.  With EBITDA NOK422m the run-rate is just 13% below our 2022 estimate of NOK 1.9bn, so with the increased paper prices in 2022, there should be no secret that we will have to increase our estimates. Shooting from the hip suggest that we will increase EBITDA by around 10% to around 2.2bn. Consensus is around NOK 1.45mNIDB stood at NOK1052m (CAR est NOK 1142m). With the proceed from the 2022 CO2 compensation (we est NOK 250m) received 1H2023 and the sale of the biopellets plant of NOK280m, adjusted NIBD is around NOK520m and cash around NOK2bn. In other words no need to worry about the equity funding in the EUR 350m capex for the conversions.  

Expect the share up today – if we should guess 5-6%
ABG Sundal Collier

Higher prices does the trick
Q4 EBITDA 59% above cons – higher pricesPublication paper prices up 35% m-o-m in JanuaryQ1 EBITDA likely up more. MTM EBITDA NOK 1.5-2bn 
Q4 EBITDA was 59% above cons 
Q4 clean EBITDA of NOK 422m was 59% above cons at NOK 266m (ABG NOK 270m). Higher paper prices in Europe contributed positively q-o-q and EBITDA was up 280%. The EBITDA margin rose to 13.6% vs 6-8% the last 2 years. Reported EBIT of NOK 479m vs. cons at NOK 158m due to NOK 185m positive one-offs (not in EBITDA). This puts EPS at NOK 4.24 vs cons NOK 1.3 (ABG NOK 1.3). Better prices added NOK 550m, gas deducted NOK 150m, electricity deducted NOK 75m and RCP deducted NOK 25m q-o-q. 

Higher prices + strong volumes 
Publication Paper Europe had EBITDA of NOK 395m vs our estimate of NOK 270m. Publication Paper Australasia had clean EBITDA of NOK 46m vs our estimate of NOK 10m and “other” was below at NOK -19 vs our NOK -10m. Volumes were strong and the utilization rate was to 95%: Production was flat q-o-q, deliveries fell 2.4%. Cash flow was strong: Net debt was flat q-o-q at NOK 1,054m despite NOK 326m capex.

Outlook: Newsprint prices up 35% in January to ATH 
Publication paper prices are up dramatically. Newsprint prices are up 34% m-o-m in January and up 80% from the trough in June’21. This will benefit Norske in ’22, although the company has realized large price increases already in Q4 (ahead of its peers). Q1 should improve further due to more price increases, higher CO2 benefits, somewhat offset by higher Norwegian electricity contracts linked to German newsprint prices. We reckon that Q1 EBITDA could improve to NOK ~450m. Norske buys 1.1 TWh of gas at the Bruck site; this gas bill will be sharply reduced from Q2‘22e when the Bruck energy boiler starts up in Q2, ie Q2 should be better than Q1. We see MTM EBITDA NOK 1.5-2bn.
  Initial Comment – Significant Q4 beat due to pricing 
 Due to surprisingly high graphic paper prices in Europe (27% up QOQ), Norske Skog delivered a Q4 EBITDA of NOK422m significantly better than expected. On a positive note, the waste-to-energy facility in Austria is expected to be in operations in Q2 and the containerboard projects appear to be on track. We find the Q4 report very encouraging and supportive for the share price. Q4 report.

The EBITDA was NOK422m compared with Bloomberg consensus (5 est.) of NOK240m (76% EBITDA beat) and DNB of NOK160m. The Q4 results appear straightforward and the much stronger Q4 results are fully due to significantly higher European graphic paper than what anticipated. Materials cost/t for the European paper business was up more than 20% QOQ in Q4 but this was much more than offset by European paper prices moving up 27%QOQ inQ4 (we had assumed 7%). Sales of Co2 rights in Europe contributed to NOK105m (se had assumed NOK160m).

Strong market conditions expected to prevail: 
As usual, Norske Skog is not providing any tangible earnings outlook. However, the company says that the significant capacity closures and conversion to packaging paper in the industry have positively impacted the market balance for publication paper. Additional capacity closures have been announced for 2022 and 2023. Thus, operating rates are expected to remain high for the industry well into 2022.

Transformational projects on track: 
On a positive note, the wast-to-energy facility in Austria is expected to be in operations in Q2 and the containerboard projects appear to be on track. Although we had expected this, this update is still comforting.

Positive revision and higher share price: 
Obviously, consensus expectations for 2022-2023 will move up significantly on the back of the major earnings beat that is driven by stronger pricing and Norske Skogs comments about high operating rates in 2022e. Difficult to say how much but consensus EBITDA22e could increase in the region of 20-30%. Ahead of Q4, consensus EBITDA was at NOK1,275m and DNB at NOK1260m.


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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