EUR 86.89 For Business Accounts Only

SCA (Buy, TP: SEK208.00) - Pricing power and FX tailwind

Due to its unique backward-integrated business model, we believe SCA will be hit less hard by cost inflation than the rest of the industry. We also see meaningful pricing power for kraftliner and pulp for 2023e and beyond, while the stronger USD should provide a gradual tailwind over the coming quarters. We have made small but positive changes to our optimistic 2022–2024e scenario. We reiterate our BUY and SEK208 target price. Mixed but overall favourable Q3e. Although prices and volumes for the Wood division are set to decline QOQ, this is mitigated by stable Containerboard and better Pulp prices QOQ. We forecast fairly strong EBITDA of SEK2.4bn and expect SCA to provide positive comments on the outlook with the report (due at 08:00 CET on 28 October). 2023e consensus overly cautious. Reflecting better FX, we have made minor positive revisions to our 2023–2024 estimates but assume Pulp and Containerboard prices will peak in Q3. Even though we use conservative assumptions – including 40% lower EBITDA/m3 for the Wood division than 2021 (peak year) and close to 25% lower pulp prices (in USD/t) in 2023 than spot prices – our 2023e EBITDA remains c20% above Bloomberg consensus. Lowest cost inflation in the industry. SCA’s attraction lies in its unique business model, which offers 50% backward integration in its own forest and near self-sufficiency in electricity. The forest asset is also key for our SOTP value of SEK227share (c50%). What makes us comfortable using SCA’s own forestry valuation of SEK85bn in our SOTP is that having more wind parks starting operations on its land should play an increasingly important role in the long-term value of SCA’s forest land. BUY and SEK208 target price reiterated. With strong long-term market fundamentals and still-positive price trends for Containerboard and Pulp, we expect SCA to continue to report good earnings and stress the significant profit increase in 2023e from the Obbola expansion. We base our target price on a blend of valuation multiples, dividend yield and our SOTP: 2022–2023e P/Es of 20–24x (below SCA’s historical 25x), a 2022e yield of 1.9%, and a 6% discount to our SOTP.