Rottneros AB (publ)
Research by MICKE
- 11.40 -20.00% (03/02/2024)
- BUY
Strong balance sheet as a result of very strong pulp prices during 2022, hedged electrical prices 2022, and relatively prudent financial management knowing that pulp is a cyclical business. Prices on wood used has increased, i.e. higher costs, due to Ukraine invasion limiting Russian supply to Finland. The pulp prices are declining due to global recession, and will probably continue to decline and/or stay low for some time before they turn up according to Rottneros outlook. My guess is that the share price might continue to drop during Q2 and after the Q2 report where I expect a weak result, and depending on outlook on pulp prices stay low or turn up, where my guess is that it will turn up during the second half of 2023, since the company's finances are overall good with low debt. Short term risks and variations, should be a good long term investment with good total return (10%/year) and low long term risk.
Business (2)
The main driver for prices in the pulp market is China. If the Chinese economy will gains momentum, global pulp prices will go up.
01As the world’s middle class is growing so is demand for tissue (i.e. toilet paper etc.) and cardboard for e-commerce deliveries.
01Financial (5)
The result 2023Q1 EBIT was 149MSEK, high USD to SEK improved the result, since pulp is priced in USD, most costs are in SEK. EPS=0.77 SEK.
01At end of 2023Q1 Rottneros had a net cash position of 475MSEK. They have interest-bearing debt of 103MSEK and an interest-bearing deposit of 100MSEK. This is significantly better finances than most other companies and should both lower risk and potentially help the company to achieve higher net results, since most competitors will have higher capital costs.
01Electricity usage is 220 Gwh per year, where of 100% is secured for 2023/2024 and 80% for 2025 all at ~0.35SEK/kWh.
01Restructuring; Rottneros production of pulp for graphic paper has been closed, due to decreasing demand and a 135 year old production line, this enabled Rottneros to sell the hedged electricity which will generate a positive effect of about 150MSEK during 2023. Investments for 2023 include increased CTMP (pulp) capacity (increased capacity autumn 2024) and solar power (3GW + batteries). Rottneros started a JV with Arcitic Paper in Poland for production of food packaging.
01There is a large gap between official EU pulp prices and net prices (after discounts etc.) and the gap is increasing due to high inventory levels and large buyers putting pressure on the prices. Look at the Shanghai pulp prices for a more actual pricing.
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