- Sappi Q1 24E results tomorrow: Sappi will release Q1 24E results tomorrow at 8am, with a conference call at 4pm (Register for conference call or Register for the webcast). Sappi will also host its AGM tomorrow at 2pm (Download ESG report).
- Q1 24E earnings guidance: Sappi has guided for EBITDA to be lower q-o-q (Q4 23A: $168mn) taking into consideration the impact of the scheduled maintenance shuts. Consensus is expecting EBITDA of $133mn and EPS of $0.07 – ahead of our estimate of $114mn and $0.05, respectively.
- The anticipated uptick in profitability across Europe is promising, yet the uncertain trajectory of the graphic paper market remains a pivotal factor to consider: During the fourth quarter, there was a notable increase in pulp prices (SW up by 2% q-o-q and HW up by 4% q-o-q), whereas graphic paper prices experienced continued downward pressure (LWC/CWF/UWF down by 5% q-o-q). The cost-saving benefits resulting from the Stockstadt and Lanaken closures are expected to materialize from Q3 onward, amounting to at least €60 million per year. Sappi also has other cost reduction initiatives, such as Project Fortitude, aimed at further lowering the cost base, which is projected to bolster profitability in 2025.
- Profitability in North America is anticipated to decline quarter-over-quarter due to the planned shutdown at the Cloquet mill: Although there has been an uptick in demand for graphic paper, some downtime is still expected. Prices for P&S are slightly lower, while the recovery in demand has been better than initially anticipated. Dissolving pulp volumes are expected to decrease by approximately 25%.
- Profitability in South Africa is expected to decrease quarter-over-quarter due to scheduled maintenance activities: The maintenance impact for the quarter is estimated to be around $30mn, with dissolving pulp and packaging volumes declining by approximately 25% quarter-over-quarter.
- Sappi has guided for capex in FY 24E to be around $500mn (FY 23A: $382mn): The uptick is in part explained by the Somerset expansion PM2 to packaging grades, with $154mn earmarked for the project (FY 23A: $100mn). Capex heading into FY 25E is likely to be at a similar level.
- Rating and TP: We have a NEUTRAL rating on Sappi with a TP of R44/share.
