Navigator: Opportunity on overreaction to tax duty
We upgrade our rating on Navigator from Neutral to BUY. Our FV moves from Eur5.4 to Eur5.2, which gives us 26% upside. We think Navigator was over-penalized after the impact from the US tax duty case, with the shares down by 17% in the last month vs. -6.5% for the PSI20. Navigator is still benefiting from the strong pulp & paper prices and we think this momentum should continue in the coming quarters. As pulp prices are at record highs, we see room for paper prices to go up and announcements of price rises are likely to be implemented. This would further support EBITDA growth in Navigator. The tax duty case, which came back to the table in August, is a negative event but the impact should be limited as it only sells c. 10% of its paper production in the US. We adjust our estimates for the tax duty in 18E and we also adjust future EBITDA as we assume it redirects part of its US sales to other markets, and we still get c. 11x P/E 2019E, a FCF yield of c. 9% and EV/EBITDA of 7.3x. This is below peers on P/E and also at the lower end of the historical trading range.Navigator and its subsidiaries are engaged in the production and sale of cellulose pulp and related products, the purchase of wood and agricultural and forest production, the harvesting of forests and the transport of wood from the forests to the plants, and the production and sale of electricity and thermal energy. Co. is also involved in the production of paper and derivative paper products.
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