Sappi | Damage control
We have reservations about Sappi's evolving Vision 2020 strategy. The acquisition of the Matane mill suggests Sappi is incorporating more cost control elements into the stragety. Whereas the deferral of the second phase of Saiccor's expansion indicates volume growth in higher margin product grades will slow over the medium term. We believe that the Matane acquisition has been partially forced on Sappi since, the Group faced the prospect of raw material supply risks (or higher costs) if a competitor bought Matane. As a result, Sappi will have to leverage up in FY '20f to complete the Matane acquisition despite facing increasing challenges in its core graphic paper (demand) and dissolving wood pulp (prices) markets.Sappi is a holding company, engaged in providing dissolving wood pulp, paper pulp and paper-based solutions. Co.'s dissolving wood pulp products are used by converters to create viscose fiber for clothing and textiles, acetate tow, pharmaceutical products, as well as a range of consumer products. Co.'s paper products includes: coated fine papers used in the production of books, brochures, magazines, catalogues, direct mail and many other print applications; casting release papers used for fashion, textiles, automobile and household industries; and in the Southern African region newsprint, uncoated graphic and business papers and premium quality packaging papers and tissue products.
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