- Limited impact in Q1 20A from COVID: Their RM supply
chain remains solid with no anticipated supply issues. Verso noted pressure
from lack of demand and “competitors are filling up machines and going after price
aggressively”.
- Continued
pressure on Graphic and Specialty: Revenue declined by 26% y/y due to unfavourable price/mix as well as
volume pressure (Graphic and Specialty Paper). Total pricing was down 11% y/y
with volumes declining by 17% y/y (-7% excluding the Luke Mill closure). Release
liner and packaging continues to grow.
- Sappi North America vs. Verso: Verso reported
net sales of USD 471m vs. SAP’s USD 387m (we estimate USD 334m excl. DWP). SAP’s
volumes were 416kt (excl. DWP, we estimate <340kt) vs. Verso’s 554kt. SAP
was able to gain CFS market share with volumes +10%, while Verso’s volumes
declined by -7% (excl. closure). SAP’s
EBITDA margin was 8.0% (excl. DWP, we estimate 9%) vs. Verso’s 7.4%.
- Focus remains on diversification, but
graphic paper remains key driver: Verso continues to focus on growth of
Packaging and Specialty Papers (16% of revenue), while maintaining a premium supplier
position in Graphic Papers (74% of revenue).
- Liquidity
of USD 498m and no gearing (net cash position of USD 276m compared to net debt
of USD 39m last year): Verso
can repurchase up to
USD 250m of shares (Q2 20e: USD23m), with USD 2.7m in Q1. Additionally, they expect
to initiate a quarterly dividend in Q2. - Further demand pressure across graphic
papers is expected, while pressure has not been seen in their specialty,
packaging and pulp business: Volumes in Q2 could drop by as much as 40%, while
graphic paper prices could drop 5-7% in 2020 (RISI). They intend to take
110-120kt of graphic paper downtime in Q2 and sell more market pulp. Release
paper is doing well with more trials under way. They aim to be FCF positive this
year “but will not be easy task”.
- Verso snapshot: Share price -35% in the
last 12m (market cap: USD 482m and historical P/E: 4.3x).
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