EUR 91.20 For Business Accounts Only

Metsa Board (Hold, TP: EUR8.00) - Too-strong market headwinds

Due to harsher than expected market terms, we have made further, significant estimate cuts. We emphasise the company’s cost-competitive asset portfolio, strong positions in lucrative niche markets, and solid balance sheet, but we struggle to see any positive near-term share-price catalysts. We expect a muted near-term outlook from management with the Q2 report; however, as this should be widely expected, we have downgraded only one notch, to HOLD (BUY). We have reduced our target price to EUR8 (9). Headwinds from lower pulp prices and weaker packaging prices. Given a soft price trend for most packaging grades that is set to roll over into Q3 and much weaker pulp prices hitting Q2–Q3e, 2023e earnings clearly look set to be weak. We forecast Q2 EBIT of EUR57m and Q3 EBIT of EUR45m. The Q2 results are due at 11:00 CET on 27 July. Large estimate cuts. Like many of its close peers, Metsa Board’s business model is very sensitive to changes in prices and volumes and, due to a more cautious price view on the paper board businesses and particularly the pulp business, we have cut our 2023–2024e EBIT estimates yet again, by 16–20%. Business cycle should improve in 2024e. As many pulp and paper board peers with less-favourable cost positions appear to be experiencing problems covering their opex, we believe Metsa Board should see an improved business cycle in 2024 and that Q3 trading conditions should mark the bottom. Downgraded to HOLD and target price cut to EUR8, with weak momentum but still an attractive valuation. We fail to see any positive triggers but the company offers low-cost operations, and long-term we like its paperboard exposure as we believe sustainable packaging solutions should outgrow the overall packaging market (desire to move out of plastics). Our new target price corresponds to a 2024e EV/EBIT of c11.5x (8-year average c12.5x).