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IBERPAPEL: 1Q’20 RESULTS AND CHANGE OF RECOMMENDATION TO BUY (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results:
Sales: € 49.91 M (-21.9% vs. -20.5% BS(e));
EBITDA: € 6.73 M (-29.3% vs. -26.9% BS(e));
EBIT: € 3.9 M (-43.2% vs. -39.3% BS(e));
Net Profit: € 3.33 M (-38.7% vs. -39.8% BS(e)).

The company has just released poor 1Q’20 results, as expected, with EBITDA and EBIT slipping, but with Net Profit more in line. Sales came in slightly below our estimates (-2% vs. BS(e)), as did EBITDA (-3% vs. BS(e)), with slightly worse margins than expected (13.5% vs. 13.7% BS(e) and 14.9% in 1Q’19). All this translates into a -39% drop in Net Profit vs. 1Q’19 (vs. -39% BS(e)).
The company has reported a net cash position of € 64 M vs. € 79 M as of YE2018, with € 13 M of investments on the quarter (we understand these would be for the new pulp production facilities).
In the conference call held after the results presentation, the company stressed that, although paper prices show some stabilization at the moment, it does not rule out additional drops, which could also be seen in volumes. Additionally, it mentioned that, even though the installation of the new paper machine included in the Hernani project has not been cancelled, the company would be revising its investment case once again, given the current economic situation.
Despite the fact that the results show sharp drops in all lines vs. 1Q’19, we must bear in mind that the comparison was especially challenging, as 1Q’19 was a record quarter in sales over the past 10 years (driven by the elections in Spain). Today the stock is up +5% after outperforming the IBEX 35 by +12% since the market high on 19/02 (start of the impact from Covid-19), showing its defensive character in the current situation.
With the revision of estimates we intend to carry out for our scenario of V-shaped recovery (deep economic recession for 2 quarters and strong recovery over the two following quarters and 2021), which would mean -45% in EPS’20 and -15% on average over 2021-22 (due to the drop in volumes sold and in paper prices), our T.P. would fall to € 26.00/sh. (-17% cut). In our negative scenario of U-shaped recovery (deep economic recession for 2 quarters, moderate recovery in the 3Q and strong in the 4Q and 2021 where we would see more persistent drops in paper demand and prices over time), we would cut Net Profit’20e by -54% (-22% on average over 2021-22), with the T.P. standing at around € 24.00/sh. (-25% cut). With this in mind, as we see upside in both scenarios, we change our recommendation to BUY (-47% correction from August’18 highs; -20% vs. IBEX).