• Lenzing’s 500ktpa (single line, largest globally) DWP plant in Brazil is still expected to start-up in Q2 22e: The project is still on budget, with planned CapEx of USD 1.38bn and is 48% complete. The project is expected to have a cash cost of USD 300/t, with Lenzing assuming a LT average DWP price of USD 900/t. Pace of ramp-up, and whether Lenzing initially produces paper pulp, will impact the DWP supply balance in CY 22e and accordingly likely to impact Sappi’s contract vs. spot volume mix.
  • Revenue from Speciality VSF reached 62%, up from 52% in FY 19A: The significance of this is generally higher margins due to premium pricing and demand is less cyclical. This ties in with their EUR 400mn project, the largest of its kind, boosting Lenzing’s specialty exposure with a 100kt lyocell plant in Thailand. The ramp-up is still expected to start in Q4 21e.
  • Lenzing’s TENCEL x REFIBRA fibre is helping to reduce textile waste: This is the first wood-based cellulosic fibres with recycled raw material content (up to 30%) on an industrial scale.  
  • Global fibre demand expected to remain healthy through to 2025 but seems to have been tapered: Wood-based cellulosic fibres (3-5% was 4-6% p.a.) expected to outperform synthetic (2% was 3-4% p.a.) and cotton (unchanged at -1-1% p.a.). We believe this is driven by the structural headwinds faced by cotton and synthetics. Unpacking wood-based cellulosic fibres growth outlook further, Lyocell is expected to see the most growth (15-25%), followed by Modal (5-10%) and then viscose (3-5%).
  • Xinjian cotton imports remain banned by the US: This is likely to provide a strong underpin for VSF demand as the region supplies 20% of global cotton. Other apparel brands are likely to follow in H&M’s footsteps of cutting ties with the region.
  • FY 21e EBITDA expected to be higher y/y and in line with pre-COVID levels: This is underpinned by strong demand for sustainable fibre solutions and a favourable pricing environment.   
  • FY 24e targets imply EBITDA should quadruple: By FY 24e, Lenzing is targeting EBITDA of EUR 800mn, ROCE >10%; net debt/EBITDA <2.5x; speciality share >75% of revenue and DWP backward integration of >75%.

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