- Sappi to report 3Q 24e results on Thursday, 8 August at 8am: With planned maintenance impacting SA (-$10mn) and North America (-$20mn), and the seasonal slowdown in Europe coupled with elevated paper pulp prices, we expect margins across all regions to be softer QoQ. Accordingly, we expect Sappi to generate EBITDA of $159mn (+50% YoY; -13% QoQ), with EPS of $0.11/share. This compares to consensus of $148mn EBITDA and $0.09 EPS including a plantation price fair value adjustment of -$1mn. Net debt should pick up slightly during the quarter, impacted by a net small outflow of around €15-20mn related to European closures and restructuring. We expect capex (FY 24e: $500mn) likely to be weighted towards the fourth quarter (CRe: $275mn). The presentation is at 3pm, Register for the webcast here!
- European profitability likely to come under pressure on lower graphic paper prices, coupled with elevated pulp prices: UPM Communication Papers profitability weakened QoQ, driven by lower volumes (-10% QoQ & -11% YoY) after restocking in Q1 and the strikes in Finland. The EBITDA margin came under pressure as fibre cost increases materialised quicker than paper price increases. UPM’s Raflatac confirmed that the self-adhesive label market in Europe continues to recover (+23% YoY) but was softer QoQ (-4%). Meanwhile, Stora Enso’s results revealed that demand for consumer board remained solid (deliveries: +2% YoY and +5% QoQ), while pricing was stable QoQ. We expect a small increase in volumes QoQ, while we have pencilled in a blended QoQ price decline of -2.8% for graphics and a +1.2% increase in P&S (10% FBB weighting; 16% containerboard and 74% labels and specialty). We expect EBITDA of €21mn (2Q: €32mn), with an EBITDA margin of 3.9% (2Q: 5.9%).
- Adjusting for planned maintenance (-$20mn impact) at Sappi’s Somerset mill, the North American segment performance should still be robust: P&W stocks are more normalised and Billerud expects the US election to fuel demand, while pricing is expected to remain stable. Billerud’s results revealed excellent profitability in North America despite graphic paper operating rates below 70% (volumes +4% QoQ, with sales +15% YoY & +10% QoQ; EBITDA +26% QoQ, with an EBITDA margin of +18.5%, +231bps QoQ). In terms of Packaging & Specialties, SBS prices softened by 5% QoQ (-14% YoY); however, based on AF&PA statistics, industry shipments improved by +0.9% QoQ, with the industry operating rate at 84% (1Q: 84%). Meanwhile, industry production declined by -6%, driving an inventory reduction of 16%. Accordingly, we expect EBITDA of $41mn (2Q: $51mn), with an EBITDA margin of 9.2% (2Q: 11.3%).
- The South African segment will too be impacted by planned maintenance (-$10mn) at its Saiccor mill and a small forestry fair value loss (CRe: -$3mn): With dissolving wood pulp supply/demand fundamental still favourable, this should support a slight uptick in DP volumes sold during the quarter. Accordingly, we expect EBITDA of R1,776mn (2Q: R1,776mn), with an EBITDA margin of 26.0% (2Q: 27.0%).
- 4Q 24e outlook: In our view, Sappi is likely to guide for EBITDA to be higher sequentially and YoY with our current estimate of $187mn. This however is likely to be adversely impacted by the fire and subsequent explosion which occurred on a supplier truck delivering liquid oxygen to the Sappi Saiccor Mill on 17 July. In addition to higher costs associated with a phased start-up commencing around 21 July, we estimate that the incident could have reduced DP production by around 20-23Kt, with a knock-on impact on sales and EBITDA dependent on DP stocks prior to the incident (most probably already quite low, in our view).
Download Report
