Earnings multiple

In 2023 annual revenue and earnings remained good in challenging market conditions. Management has acted pro-active to manage price levels and volumes. Management delivering good results throughout the business cycle adds to the quality of earnings.

In the past 3 years earnings per share are above 6kr/share (rolling 12 months) resulting in a 8x PE ratio, which is the average for the company. The Bäckhammer investment should improve EBITDA with 100Mkr in 2026. This would justify a target price of 60kr.

Dividend

Nordic Paper lowered its dividend over 2023 to 4kr (4.65kr). The dividend policy is a payout between 50-70% of earnings. Dividend expectations are 3,50kr-5,60kr (7%-11%) per share.

SVP as majority shareholder is an uncertain factor for future dividends.

Natural grease-proof

The paper is mainly used in contact with food, and some other areas (electronics). The paper is produced in Sweden, Norway and Canada.

Kraft paper

Kraft paper is produced in Sweden from own production of pulp that is based on locally produced raw material (Bäckhammer). The paper is used for packaging in different industries from food to industrial.

Bäckhammer project

Investments of 850Mkr are expected to increase EBITDA with 100Mkr in 2026. The project is expected to increase production, improve sustainability and competitiveness.

The average ~800Mkr EBITDA of the past 3 years should increase to ~900Mkr in 2026. Based on the historic 6x EV/EBITDA multiple the target share price is above 60kr.

((6x 900Mkr) - 1.350Mkr (Net debt)) / 67M shares = 60kr.

Trends

Nordic Paper benefits from the long-term ESG trend with replacement of plastic products and the environmental and sustainable requirements towards supplier. The company is well-positioned in the target market(s) for paper products; especially with the safety regulations in the food sector the company has moat (reflected in its gross margin and ROE).

Dry forming

Dry forming is a new technology to produce 3D products from cellulose. This can be a replacement for plastic products. The technology is under development and could be a potential future catalyst.

Strategic value partners

In October 2024 Strategic Value Partners purchased all shares (48%) from Sutriv Holding AB (Chinese shareholder). Afterwards the company gained majority control.

The control over the company by SVP is possibly an opportunity but certainly an uncertainty. Most certainly it will impact the capital allocation; dividend policy, share buyback and/or net debt. Drivers could be e.g.; financial engineering aligned with SVP goals, growth through M&A with debt provided by SVP.

SVP purchased on 50kr which should reduce downside risk for the share price.

Financial strength

Since the purchase of the Canadian company end 2021 the company has reduced net debt by 50%.

Currently the Bäckhammer investment requires CAPEX. Q3'24 1.4x Net Debt/EBITDA is modest and well below the targeted <2.5x. This provides room for investments into future growth (M&A).

Increased inventory

Management actively reduces sales volumes to protect price levels. Increased inventory levels could signal a downturn in the companies .