• Sequential underlying EBITDA improving but still down y/y: EBITDA increased by 14% q/q to EUR 353mn. However, EBITDA declined by 8% y/y. This appears to be a function of MNP’s UFP segment, cost headwinds and unfavourable FX (weaker USD). In contrast, we note that Smurfit Kappa has outperformed MNP’s EBITDA growth for the last nine quarters in a row and printed EBITDA growth of 1.6% y/y (+0.3% q/q) to EUR 386mn in Q1 21A.  
  • Corrugated Packaging (37% of FY 20A EBITDA) likely to have a stronger quarter in Q2: As flagged by most containerboard peers, MNP are running full and are capacity constrained due to strong demand (market is “very tight)”. Corrugated volumes were “significantly” higher (Smurfit Kappa’s +7%). Further containerboard price increases are under way and MNP is making good progress in passing on higher paper costs.
  • Flexible Packaging (38% of FY 20A EBITDA) is benefitting from strong demand and on the onset of price increases: Kraft paper saw “strong demand” in Q1. In terms of sack kraft (market paper and bags sold) pricing, 33% of volumes are sold on 12-month fixed contracts, 33% on month fixed contracts and 33% in the open market. Speciality grades pricing is also improving but more subdued with more volumes on the open market. MNP expects strong pricing and demand to continue.
  • The UFP business (19% of FY 20A EBITDA) is improving but remains under pressure due to lower sales volumes and lower pricing: MNP indicated that the UWF market remains oversupplied (despite Stora Enso’s recent closure announcements), and that more rationalization is required, especially from the unintegrated producers. UWF demand remains below pre-crisis levels and MNP don’t expect demand to recover to pre-COVID levels. MNP has implemented price increases across all key markets (FOEX UWF price index is up 2% YTD and 0.8% since the end of March). We note that the Navigator Company is expected to report Q1 21e results on 28 May.
  • MNP has now stabilized Engineered Materials profitability (6% of FY 20A EBITDA): Demand for functional papers and films is improving coupled with the benefits from having restructured the segment.   
  • Given limited impact from shuts in the quarter, we believe cost inflation is now becoming more prominent: It appears that costs across the board are now a headwind for margins (paper for recycling, resin, energy, and transport).  
  • No new projects announced, however, MNP alluded to “lots more organic investment” in their core markets: MNP are happy with the ramp-up of Štêti (conversion from containerboard to specialty kraft paper) and the Ružomberok project (hybrid white top liner). MNP expects the Štêti ramp-up to be fairly quick, while Ružomberok is expected to average over 70% utilisation in FY 21E. Richards Bay upgrade (extended shut in Q3 and Q4: recovery boiler and chemical plant) is going to improve production stability.
  • Outlook statement reinforces further strong demand and price increases for key packaging grades: MNP expects further “significant” cost pressure and FX headwinds to persist. Expected impact on EBITDA from planned shuts remains at EUR 140mn, despite sharp increase in pulp, sack kraft and containerboard prices. EUR 40mn EBITDA impact is expected in H1 21e (H1 20A: EUR 10mn) andEUR 100mn in H2 21e (H2 20A: EUR 90mn).

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