• Q2 22E results on Thursday 12 May, key numbers to look out for: Q2 to mark the seventh quarter of sequential EBITDA improvement to USD 273mn (+144% y/y and +14% q/q) and EPS of USD 0.24/share.
  • Q1 22A recap (EBITDA: USD 240mn and EPS: USD 0.20/share and net debt/EBITDA of 2.9x): Europe EBIT was in the green (first time since Q2 20A) and North America printed a record Q1 EBITDA. DWP volumes were 9% > than expected.
  • Europe EBITDA and margin likely to improve further in Q2 22E: Pricing remains on the rise, and demand is strong. In our view, this will more than offset cost pressures from energy and pulp (+1-3% q/q). CWF prices increased by 40% y/y (+19% q/q), while CM prices were up 45% y/y (+27% q/q). European CWF demand continues to remain robust, up 11% y/y for Jan-Feb 22. Following the blow out in energy prices in Europe, we estimated an energy headwind for FY 22E of at least EUR 260mn (Q1 22A: EUR 60mn). However, with the spot ICE Dutch TTF Gas Futures trading below EUR 100/MWH, there is upside risk to European margins.    
  • North America likely to have had an even stronger quarter: Despite an extended planned shut at Somerset in Q1 22A, North America printed a record Q1 EBITDA. Q2 to be stronger on the back of robust demand (US CFS purchases: Jan 22 +29% y/y; Feb 22 +8% y/y and March 22 +24% y/y). Additionally, the pricing environment remains strong, with the CFS price up 25% y/y and +4% q/q. 
  • SA likely to have a softer quarter: This is on the back of lower realised DWP prices (CRe: -7% q/q) and a stronger ZAR vs. the USD (+1%). Encouragingly, the spot DWP price is USD 1,100/t (ZAR: 17,699/t), with potentially some more upside. Most of this benefit will be realised in Q4 22E.
  • Balance sheet continues to strengthen: We expect net debt to decline by at least 8% y/y and by 1% q/q to c.USD 1.9bn, with net debt/EBITDA declining to 2.3x
    (Q1 22A: 2.9x). FY 22E CapEx guidance is USD 395mn, with USD 72mn in Q1 22A.
  • Upgrades to our EPS outlook: Higher prices for DWP and Graphic Paper, coupled with a weaker ZAR offset lower DWP volumes from recent flooding and a weaker EUR. FY 22E +18% to USD 0.93/share (EBITDA USD 1,053mn); FY 23E: +49% to USD 0.63/share (EBITDA USD 841mn) and FY 24E: +29% to USD 0.46/share (EBITDA USD 729mn).
  • Maintain OVERWEIGHT and upgrade TP by 16% to R 102/share: SAP rallied 39% in 2021 and is up 25% YTD. SAP is currently trading on a 1-yr rolled fwd. EV/EBITDA (x) of 4.1x (5yr average 5.1x), with FY 22E EBITDA set to increase by 98%.  

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