Metsa Board (Buy, TP: EUR14.00) - Earnings growth continues Although input costs are rising, we expect this to be fully offset by higher prices. Due to a more positive view on pulp prices, we have raised our 2022e EBITDA by 7%. We believe 2022 is set to b
Metsa Board (METSB FH, Buy) - Earnings growth continues Although input costs are rising, we expect this to be fully offset by higher prices. Due to a more positive view on pulp prices, we have raised our 2022e EBITDA by 7%. We believe 2022 is set to be much stronger than reflected by the market. In addition, given the high barriers to entry and favourable demand outlook, underpinned by structural factors, we continue to see impressive potential beyond 2022. We have lifted our target price to EUR14 (13) and reiterate our BUY. Q1 estimates (report due at 11:00 CET on 28 April). We forecast Q1 EBITDA of EUR133m (EUR113m in Q1 2020). Q1 is typically a seasonally strong earnings quarter, and given signals of overall higher prices for fibre-based packaging products and higher spot prices for pulp, we believe this will more than offset higher input costs for electricity, chemicals, and logistics. For Q2, we expect EBITDA of EUR155m. In the Q1 report, we expect the company to guide for sequentially stronger earnings. Set for a strong 2022e. Thanks to good availability of relatively low-cost fibres (local wood) and a decent energy balance (self-sufficiency of nearly 60%), we believe the company’s total opex outlook seems under control. At the same time, pricing power should remain very favourable for its paper-board business. We also highlight the positive market sentiment for pulp. Over the past year, gross NBSK prices in Europe have risen by more than 20%, and we note that producers are pushing for new price hikes of up to 5%. Structural growth. With favourable demand prospects underpinned by mega-trends (the desire to move away from plastics), and barriers to entry to the company’s core business (lack of wood fibre and long lead times for new capacity), we see a promising long-term earnings outlook. Given the low-cost position, we also like the company’s pulp business (annual surplus of pulp is significant at about 400,000t). BUY reiterated and target price raised to EUR14, corresponding to a 2022–2023e EV/EBIT of c10x. With a low 2022–2023e EV/EBIT of less than 8x, compared to the 5-year average of c13x, we believe the valuation is unjustifiably low. (14 pages)Metsa Board is a European producer of folding boxboard and white fresh forest fibre linerboard and a market pulp supplier. Co. and its subsidiaries comprise a forest industry group, which operations are organized into two business segments: Cartonboard and Lineboard and Paper. The Cartonboard business area is a manufacturer of folding boxboards. The business area also provides packaging services in Asia. The Linerboard and Paper business area is a manufacturer of coated white fresh forest fibre linerboards and producer of uncoated fresh forest fibre linerboards. The Linerboard and Paper business area also manufactures uncoated fine papers mainly for office end-use as well as coated papers.
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