• SAP’s European operations are roughly 3x Lecta’s (based on volumes: Lecta’s Q2 19A EBITDA margin contracted by 727 bps y/y to 1.0%. This was ahead of SAP’s -0.2% EBITDA margin over the same period.
  • Lecta’s sales volumes underperformed Sappi: Lecta’s CWF volumes declined by 50% y/y (SAP graphic paper: -37%), while Specialties declined by 15% y/y (SAP: -4.0%). We attribute this to potential market share gains as well as Lecta’s geographic exposure. We note that Lecta’s asset base is mainly in Spain (76%), followed by Italy (14%) and France (10%) with 80% of its sales into Europe (SAP c.75%).   
  • Demand in reels for Self-Adhesive was strong during lockdown: Deliveries of European producers of Self-Adhesive was +8% YTD in June. Demand from June was more contained but still positive. They expect growth of c. 4% in Q3, in line with the LT trend. The demand in sheets (driven more by the Graphical Sector) was -25% in Q2, with June YTD demand down 2.1% y/y. They expect a recovery in Q3, but still negative y/y.
  • The do not expect pulp prices to increase in 2020 (in EUR): This is on the back of the evolution of demand, COVID-19 and the USD/EUR. They consume c.20% SW and 80% HW (on our estimates this compares to SAP’s mix of 40/60).
  • Transformation continues as recapitalization implemented on 16 July 2020: Following the recap, 75% of Lecta is held by Apollo Global Management, Cheyne Capital and Tikehau Capital. Lecta also secured further credit lines to provide further stability to working capital and the removal of covenants for the next 24 months. Reported net debt/EBITDA came in at 5.6x. However, after the recap, this was closer to 3.8x (SAP: 4.1x).
  • Organization efficiency program to continue: Targeting stable labour costs despite inflation and addition of roles in the specialties business. Headcount declined by 1% y/y to 3,124 employees (SAP Europe: 5,838), with the average cost per employee declining by 16% y/y to EUR 50k p.a. (government relief of EUR 4.2m in the quarter).
  • EBITDA target of EUR 83m provided on 11 May will not be reached: Their downtime is improving with the order intake recovery. They believe the Stora Oulu conversion in September is enough to rebalance CWF in Europe. Industry July volumes were down 26% y/y for CWF and -16% for UWF.

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