• Q3 21E results this Thursday, key numbers to look out for: EBITDA USD 134mn (+417% y/y and +9% q/q) and EPS of USD 0.04/share.
  • Recent unrest in South Africa and Transnet force majeure will impact Q4: SAP had already guided to lower volumes (DWP: -28kt and Graphic Paper: -7kt) due to unrest in KwaZulu-Natal, thus lowering Q4 EBITDA by USD 16mn. Subsequently, Transnet declared force majeure due to disruptions from a cyber-attack on 22 July. We expect SAP to provide a detailed update in terms of their efforts to ship product and the associated impact on the Saiccor expansion (we assume a Q1 22E ramp-up).
  • Another strong quarter expected for South Africa thanks to DWP: We expect EBITDA to increase by 49% q/q to USD 70mn, with the EBITDA margin expanding to 21.5%.  This is driven by a higher DWP price (average for Jan-March ’21: USD 933/t +36% q/q), more than enough to offset a stronger ZAR (+5% q/q & +21% y/y vs. the USD). We have pencilled in average realised DWP price of USD 840/t.
  • North America firing on all cylinders, with momentum from Q2 continuing into Q3: EBITDA margin to expand to 12% (+90bps q/q) and EBITDA to increase by 22% q/q to USD 57mn. This is driven by higher DWP prices and SAP’s paper machines running full due to industry capacity rationalization in 2020.
  • Europe to come under further pressure due to higher pulp prices and coated paper prices still lagging: We expect a decent quarter from a graphic paper volume perspective (in the green), supported by market share gains from closures. However, with limited price increases realised and cost pressures from pulp
    (+25-35%), the European EBITDA will come under further pressure, -72% q/q to USD 8mn (EBITDA margin: 1.5%).
  • Gearing to improve with net debt/EBITDA to decline further: Net debt likely to be below USD 2.1bn in Q3 with net debt/EBITDA of 4.7x. Encouragingly, we expect net debt/EBITDA to be below 3.5x in Q1 22e.
  • Maintain OVERWEIGHT but lower TP by 9%: SAP has rallied 27% YTD, ahead of most of its peers. SAP continues to offer further double-digit upside. SAP is currently trading on a 1-yr rolled forward P/E (x) and EV/EBITDA (x) of 5.6x (10-yr average 9.3x) and 5.3x (10-yr average 5.5x), respectively. We value SAP using a SotP EV/EBITDA and set a 1-yr TP of ZAR 65.20/share.

Download Report