EUR 407.14 For Business Accounts Only

Lecta - Rating Report

Our rating is supported by Lecta’s strong positions in the European coated paper market. The Span-ish firm is the No. 3 European producer (17% market share), behind Sappi (25%) and UPM (18%), and the No. 1 in its core markets (France, Italy, Portugal and Spain). Lecta benefits from seven mills located very close to publishers, leading to low delivery times and transportation costs. Furthermore, the papermaker is integrated upstream in energy and downstream via a distribution network with warehouses and sales force. The group distributes 61% of its own products either via its network (38%) or directly (23%), which limits swings in working capital.
However, the secular decline in traditional paper demand is continuing unabated, especially in West-ern Europe where Lecta is deeply rooted. The weak volumes have caused the paper division (52% of sales) to decline 5% during the 1H17 and 3% over the LTM. On top of that, the group has to cope with the recent increase in pulp prices, its main raw material, which soared 41% since the beginning of the year. While most of other papermakers are largely or fully integrated, Lecta is very vulnerable by producing only 30% of its needs. EBITDA fell 5% yoy during the 1H17 and 3% over the LTM. In response, the group, alongside other major players, has increased its paper price by 6-7% from this summer. This will, in our view, ease some but no all pressures on profitability for this year.