EUR 88.48 For Business Accounts Only

Holmen (Sell, TP: SEK376.00) - Valuation remains too rich

Valuation remains too rich
Thanks to impressive earnings margins for the publication paper business Holmen’s Q3 results beat our expectations. We have made only small changes to our 2024 group forecasts, as our slightly increased divisional estimate for Paper is virtually offset by our slightly lowered forecast for Wood. We still consider Holmen to be in good shape, and continue to like its conservative yet shareholder-friendly strategy of prioritising cash distributions. However, as we see weak earnings momentum over the next three quarters, earnings risk for Holmen’s three industries, and the valuation multiples as generous, we reiterate our SELL and SEK376 target price.
Stable Q3 operations. EBIT of SEK1,166m was well above our forecast of SEK842m, as the publication paper business saw stronger-than-expected earnings (EBIT of close to SEK686m) thanks to lower-than-expected opex and surprisingly resilient prices.
Only small earnings revisions. Although we have taken a slightly more positive view on the publication paper business, this is largely offset by our slightly more cautious stance on the cyclical wood product business, where any increase in earnings seems unlikely until mid-2024. Thus, our 2024–2025 group forecasts are largely unchanged.
SELL and SEK376 target price reiterated. Thanks to the backward-integrated business model with its own forests, Holmen has good control of the escalating wood and fibre prices that are hurting the industry. Its balance sheet is also overcapitalised, and we like the conservative yet shareholder-friendly strategy of prioritising cash distributions. However, more than offsetting this, we highlight earnings risk for the industry divisions in 2024, weak near-term earnings momentum, and relatively elevated earnings multiples compared with other forestry companies in our coverage.