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Research Tree provides access to ongoing research coverage, media content and regulatory news on Holmen. We currently have 14 research reports from 1 professional analysts.
Holmen witnessed a healthy performance across divisions (ex. Paperboard). Forest remained the biggest profitability-generator and Paper benefited from the sustained focus on value-added products. Even the relatively smaller divisions did pretty well. While the industry’s operating environment is becoming somewhat challenging, the group’s ownership of sizeable natural resources should render critical strategic benefits.
Healthy price tailwinds were a key driver for Holmen’s 2018 results. While Forest continued to do well – both in terms of profit generation and rendering input self-sufficiency, other divisions (ex. Paperboard) also improved in varying degrees. Even though Paperboard’s current issues and a general pricing normalisation will result in margin gains receding through to 2021, the overall attractiveness of Holmen’s (natural resources-driven) earnings profile remains unchanged.
There was no major surprise in Holmen’s Q3 results, wherein Paper and Wood Products’ pricing gains helped reduce the impact of cost headwinds and some divisional (volume) issues. While price tailwinds should moderate over time, healthy volumes across businesses, limited downside risk in case paper market headwinds are reinstated and apt input cushions from forests and energy – which also limit the group-wide emissions, should help Holmen maintain its valuation premium vis-à-vis peers.
Healthy price-volume improvements across most divisions were the highlight of Q2 18. Profit improvement in Wood Products, similar to peers, was notable. Despite cost pressure, aggravated by adverse weather conditions, (Paperboard and Forest’s) earnings remained healthy. While the business fundamentals, backed by ample natural resource endowments, remain promising, Holmen’s valuation offers limited upside at current levels.
Q4 results fell short of expectations mainly because of the higher-than-guided maintenance shutdown impact in Paperboard. Nevertheless, a turnaround in Wood Products, some improvement in Energy and stability of Forests ensured that: 1/ cash flows remained healthy enough to support attractive dividends; and 2/ debt repayments continued. Moreover, with European recovery so far progressing unscathed, the business performance should remain impressive. However, the prospect of a material earnings upgrade should be averted by a simultaneous uptick in inflationary pressure.
Holmen reported strong Q3 17 results, with performance coming slightly ahead of consensus estimates. Sales were SEK4bn (+3.6% yoy; -4.8% qoq), with all divisions posting yoy growth (4-55%), while the sequential weakness was due to seasonal softness in Forests (-8.6%) and some ‘implied’ pricing pressure in Paperboard. The adjusted EBIT was much better at SEK598m (+14% yoy; +13% qoq), with Paper (profits down 17% yoy; 20% qoq) being the only underperforming division. Quarterly net profit was SEK456m (+15% yoy; +16% qoq). Reported OCFs came in at SEK478m (-14% yoy; +7.7% qoq) while capex was SEK100m (-34% yoy; -38% qoq). Overall healthy cash flows helped further reduce (-10% vs. Q2 17-end) net debt to SEK3.6bn. Q4 profitability is guided to be impacted by a SEK100m maintenance shutdown in the Paperboard division.
Holmen again reported impressive quarterly results, with the Q1 17 performance exceeding consensus estimates (by 5-7%). Sales increased (+7.9% yoy; +4.9% qoq) to SEK4.1bn, with all segments, except for paper (marred by still declining prices) and energy (impacted by lower production), witnessing growth to varying degrees. Almost mimicking the top-line trend, adjusted EBIT came in at SEK633m (+8.2% yoy and qoq) and net profit at SEK485m (+118% yoy – with Q1 16 weighed by exceptionals of SEK232m; +9.7% qoq). While forests and paperboards remained healthily profitable, the rebound in the timber division – generating adjusted EBIT of SEK17m (similar to levels last seen in Q2-Q3 14) vs. loss of SEK5m in Q1 16 and a profit of SEK4m in Q4 16 – was surprising. The impact of a strong operating performance was also visible in the reported OCFs, which came in at SEK693m (+28% yoy; +133% qoq), also benefiting from materially lower (-77% yoy; -79% qoq) working capital requirements. On the other hand, capex was down (-48% yoy; -4% qoq) to SEK144m. As a result, net debt reduced (16% vs. Q4 16 end) further to SEK3.2bn. Management reiterated its guidance of SEK150m of paperboard maintenance shutdowns in 2017 – of which SEK50m and SEK100m would be recognised in Q2 17 and Q4 17, respectively.
Holmen ended 2016 on a convincing note as the Q4 16 (and full-year) results were ahead of AV’s (and consensus) estimates. Despite sluggish top-line, … Q4 sales were up (6.7% yoy; 3.3% qoq) to SEK3.9bn. The performance across divisions was healthy / reasonable, Forests in particular (+3.9% yoy; +16% qoq). Moreover, Energy witnessed a staggering sequential volume (+52%) and price recovery, after a dismal Q3 16. But the full-year sales were down (3.1%) to SEK15.5bn, with varying degrees of weakness in all segments (paper and energy in particular) – except for timber (+2.1%). While paper (-12%) was impacted by the Spanish mill divestment (and still feeble European paper markets), the Nordic region’s energy markets have remained challenging. …profitability improvement was impressive Q4 adjusted EBIT was SEK585m (+59% yoy; +11% qoq) while for the full-year it was (+29%) SEK2.2bn. Material yoy improvement was largely a function of the (severe) underperformance in Paperboard, Forests and Paper divisions in Q4 15. The qoq improvement was driven by Forests (even though benefiting from the sale of properties) and the restoration of some normalisation in Energy and Timber, thereby more than offsetting the impact of seasonally higher costs in Paper and Paperboard. An impressive turnaround in Paper, and the continuation of healthy profits in Paperboard and Forests – together accounting for 95% of profits – summed-up an overall strong year. Unlike last year, impairment losses were low (SEK122m for the full-year vs. SEK555m in 2015), resulting in Q4 net profit of SEK442m (vs. a loss of SEK438m in Q4 15 and a profit of SEK395m in Q3 16) and a full-year profit of SEK1.4bn (vs. SEK559m in 2015). Net debt reduced further Although material working capital investments (use of SEK360m vs. release of SEK443m in 2015) resulted in full-year reported OCFs correcting (22%) to SEK2bn, relatively conservative capex (down 10% to SEK785m) and SEK662m of (the Spanish paper mill) disposal proceeds helped reduce net debt to SEK3.9bn (down 19% vs. 2015 end). As a result, full-year dividend was increased (14%) to SEK12/share. Paperboard maintenance shutdowns are guided to have a SEK150m profitability impact in 2017 (vs. SEK100m in 2016).
Holmen’s Q3 16 results were in line with consensus and ahead of AV’s expectations. Sales came in at SEK3.8bn (-5.5% yoy; -3.2% qoq) with weak volumes across divisions – energy in particular (-49% yoy; -31% qoq). Although, in the case of paper, weaker volumes (-27% yoy; -24% qoq) were attributable to divestments and the fire accident at Hallsta. Adjusted EBIT was up (+7.8% yoy; +8% qoq) to SEK527m, with an improvement in paper earnings (similar to UPM and Stora) being a key driver, in addition to some normalisation in paperboard (after Q2 was marred by rebuilding costs) and a consistently strong performance in forests. Although, sequentially, there was some benefit of seasonally lower costs. Holmen also benefited from a higher change in value of biological assets (+13% yoy; +34% qoq) of SEK103m, helping partly to offset the impact of higher taxes. Quarterly net income was SEK395m (+4.8% yoy; +8.5% qoq). Even though the reported OCFs were weak (SEK553m; -15% yoy; -2.8% qoq) due to materially higher tax payments and some working capital investments, the group still managed to reduce net debt further (down 8.6% vs. end Q2) to SEK4.1bn.
Holmen good Q2 16 results, wherein, despite a top-line miss, profitability remained robust and was largely in line with consensus estimates. Given that Q1 was an exceptionally strong quarter, some moderation was anticipated in Q2. Sales came in at SEK3.9bn (-4.9% yoy; +2.8% qoq) with weak harvesting (-11%), energy (-30%) and timber (-10%) volumes exerting yoy pressure. The sequential improvement was single-handedly driven by healthy paper deliveries (+25%) as Hallsta returned to full capacity after the fire accident in November 2015, more than compensating for maintenance shutdown-induced lower board volumes (-6.2%). Despite the top-line vagaries, adjusted EBIT was up 12% yoy to €488m – with paper earnings reviving at full-throttle (profit of SEK78m vs. a loss of SEK15m in Q2 15). Although, there was a sequential correction (17%) attributable to a series of factors: 1/ paperboard impacted by SEK40m of rebuild costs (guided earlier by management); 2/ forest’s earnings (-15%; accounting for 43% of total profit) impacted by seasonally-higher costs and reversion of timber trading to normalised levels; 3/ forex headwinds of SEK30m; and 4/ seasonally-lower energy production (-31%). Net profit came in at SEK364m (+13%; +64% qoq) with the sequential operating weakness being more than compensated by the absence of any one-off charges (SEK232m) recognised in Q1 16. Despite improving working capital efficiencies (release of SEK91m vs. SEK28m in Q2 15 and use of SEK213m in Q1 16), reported OCFs were down 1.2% yoy to SEK569m as taxes paid increased by a whopping 85%. Even though Holmen received SEK484m of proceeds from the Madrid mill sale, payment for the 2015 dividends resulted in a largely unchanged net debt position compared to Q1. Management guides for a SEK40m maintenance shutdown impact at the Braviken paper mill in Q3. Unlike Q2, the (negative) exchange rate impact is guided to be negligible in the current quarter.
Holmen started 2016 on a promising note by reporting strong Q1 results. Despite sales correcting 7.8% yoy to SEK3.8bn – due to the impact of weaker paper volumes (-11%) being amplified by the fire at the Hallsta paper mill and lower harvesting volumes (-13%) – adjusted EBIT was up 47% yoy (and 59% qoq) to SEK585m. This was driven by a combination of: 1/ a turnaround in paper earnings – thanks to a better product mix and some pricing improvements; 2/ restoration of normalcy at the paperboard operations (after a maintenance shutdown in Q4 15); 3/ continuation of the healthy contribution from forests (further supported by higher than normal income from timber trading). Even though SEK232m of one-off charges resulted in net profit coming in at SEK222m (vs. SEK298m in Q1 15), this was much better compared with a net loss of SEK438m (primarily due to asset impairments) in Q4 15. Reversion of working capital benefits (use of SEK213m vs. release of SEK101m and SEK290m in Q1 15 and Q4 15, respectively) resulted in reported OCFs coming in at SEK542m vs. SEK522m in Q1 15 and SEK775m in Q4 15. Still Holmen managed to reduce its net debt to SEK4.5bn – a decade low (despite strategic capex peaking during 2010-12). Management guides SEK40m of negative profitability impact in paperboard due to the start-up costs associated with the rebuilt board machine at Workington.
Unlike UPM and Stora, Holmen’s Q4 and FY15 numbers failed to meet AV's (and consensus) expectations, although (resurfacing) material paper business weakness was the common thread tying these three European paper majors. *Q4 disruptions dilute 2015 top-line performance* Sales: Q4 – SEK3.7bn (-8% yoy; -8.5% qoq); 2015 – SEK16bn (flat; 2.5% behind AV estimates) Q4 sales were severely impacted by the paperboard maintenance shutdown (volumes down 4.9% yoy and 12% qoq) and loss of paper production (volumes down 1.6% yoy and 11% qoq) due to a fire at the Hallsta mill. Although for the full year, the strong paperboard contribution (sales up 7%) and materially higher energy volumes (+29%) helped offset weaker prices in paper, timber and energy. *A bigger profitability impact* Adjusted EBIT (excluding income from associates and JVs): Q4 – SEK369m (-20%; -25% qoq); 2015 – SEK1.7bn (-2.8%; 5.4% behind AV estimates) The paperboard maintenance shutdown had a SEK100m profitability impact in Q4. While this resulted in Q4 paperboard profitability correcting 34% yoy (and 47% qoq), overall group profits also came under pressure (despite cost rationalisation – especially in paperboard and forests) as paper and energy succumbed to difficult markets. Even forex tailwinds faded (gains of SEK50m in Q4 vs. SEK450m - o/w >50% were in paper – in 2015) during the course of the year. Attributable net profit: Q4 – a loss of SEK438m (vs. a loss of SEK4m in Q4 14 and a profit of SEK377m in Q3 15); 2015 – SEK559m (-38%; materially behind AV's estimates). Similar to Stora, Holmen too impaired its paper assets by c.SEK620m in Q4 on account of the continuous weakening in long-term paper market fundamentals. Additionally, >SEK300m of one-off charges were recognised in Q4 to create a provision for early termination of electricity contracts and the fire at Hallsta. These unanticipated charges took a toll on Holmen’s bottom-line – which had been resilient during 9m 15. *Surprising working capital release bolstered gearing position* Despite marginal weakness in operating profits, the company managed a working capital release of SEK443m in 2015 (SEK290m in Q4 alone) vs. use of SEK217m in 2014, resulting in reported OCFs increasing 16% to SEK2.5bn. Also with the unchanged 2015 capex, net debt declined to SEK4.8bn – the first time below SEK5bn since 2006. However, a (gradual) reversion of the working capital benefits should result in an increase in the net debt position. The full-year dividend was increased to SEK10.5/share (+5%; in line with AV estimates). Management guides for another SEK100m of maintenance/rebuild costs in H1 16 as the paperboard capacities are being ramped-up (especially at Workington mill by 20ktpa).
Even though Holmen reported ahead of consensus Q3 15 results, they were lacklustre when compared with the Q3 performance of Stora and UPM. Sales increased 1.9% yoy to SEK4bn, driven by a continuously strong performance in paperboard (deliveries +5.6%; +8.2% qoq), and much higher energy production (+65%) and healthy paper volumes (+4.4%). Although weakness in paper, timber and energy prices has persisted. On a sequential basis, seasonally lower harvesting volumes (-14%) and weak timber deliveries (-24%; although impacted by a renovation at the Iggesund Sawmill), along with a weak price environment, resulted in a 2.6% top-line correction. Adjusted EBIT came in at SEK489m (-5.6%; +12% qoq) as an unrelenting weakness in paper (partly also aggravated by maintenance shutdowns) and higher costs in timber, overshadowed the cost optimisation achieved in paperboard and forests (Skog). Additionally, lower gains from the change in value of forest assets (unlike the hefty gains reported by Stora and UPM) disappointed. Similar to the last few quarters, again a big contributor to the overall profitability was SEK150m (SEK400m ytd) of forex gains. Although sequentially fading forex gains were more than offset by seasonally lower personnel costs. Thankfully somewhat lower borrowing costs (driven by a low interest rate environment in Sweden) resulted in net profit coming in slightly better at SEK377m (-2.1%; +17% qoq). Cash flows were partly impacted by a slowing pace in working capital release (SEK24m vs. SEK105m in Q3 14 and SEK28m in Q2 15), thereby resulting in 12% lower reported OCFs of SEK654m (+13% qoq). Management guides for another SEK80m profitability impact due to paperboard maintenance shutdowns in Q4.
Unlike 2014 (witnessing a staggering profitability recovery), 2015 has so far been a lacklustre year for the paper sector. Holmen too has followed suit by reporting weak Q2 results – profitability in particular, which was behind consensus estimates. Even though Holmen posted double-digit operating profit growth (unlike UPM and Stora – where the reporting currency is euros), the key driver was more weakness in the Swedish Krona and not any material operating improvements. Sales came in at SEK4.1bn (+4.9% yoy; -0.4% qoq), largely driven by strong paperboard operations (+9%) and higher paper (+11%; due to a growing contribution of value-add paper) and timber (+6.1%; seasonally strong demand) deliveries; while lower third-party forest operations and continuously weak paper (particularly newsprint) and hydropower prices dampened some of the gains. Although adjusted EBIT was up 19% to SEK437m, it was attributable to SEK150m of forex benefits and somewhat lower paperboard costs. Even sequentially, 10% profitability growth comprised SEK40m of currency benefits and favourable comps (as Q1 was impacted by SEK130m of maintenance shutdown and paperboard and paper mill rebuilding costs). Further down, lower financing costs culminated in a net profit of SEK322m (+29%; +8.1% qoq). Profitability growth (even though forex-driven) along with marginal working capital efficiencies resulted in reported OCFs of SEK574 (+19%; +10% qoq).
Research Tree provides access to ongoing research coverage, media content and regulatory news on Holmen. We currently have 14 research reports from 1 professional analysts.
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Asiamet shares have fallen 24% since the release of the BKM Bankable Feasibility Study on Friday on increased capex and opex numbers. We think the move is an over-reaction.
Companies: ASIAMET RESOURCES
The completion of $825m in equity and convertible financing now puts Sirius on the cusp of finalising the funding package for its WoodSmith mine. The company plans to issue a $500m high yield bond in the coming months which will unlock the remaining $2.5bn credit facility from JP Morgan, needed to complete the project.
Companies: Sirius Minerals
In these four short videos Asiamet's CEO Peter Bird discusses results of the BKM Bankable Feasibility Study, additional exploration work to be undertaken on the KSK license, the anticipated financing for these activities and strategy and next steps in relation to Beutong.
Companies: ASIAMET RESOURCES
Anglo Asian Mining (AAZ) is a highly cash-generative miner of gold, silver and copper from four mines in Azerbaijan, where it has close ties to the government. In 2018, it produced 83,376 of gold equivalent ounces (GEOs), paid its first dividend and had net cash on its balance sheet. At this stage, we have made the highly conservative assumption of no production beyond 2025. Nevertheless, our DCF valuation of 156p reflects AAZ’s prodigious cash generation and gold/copper stockpiles. Indeed, we estimate that the company’s aggregate underlying free cashflow during 2019-25 will be in excess of its current market capitalisation and the annual free cash yield will average 16.2%.
Companies: Anglo Asian Mining
In its nine-month operational update, Pan African Resources (PAF) disclosed production that is consistent with its FY19 guidance of 170,000oz. This caused us to reduce our FY19 forecasts fractionally in anticipation of lower production than we previously expected from Barberton offset by higher (but lower-margin) production from Evander underground and the BTRP. More importantly, however, Pan African’s directors approved the development of the Evander 8 Shaft pillar project, with production from as early as August, causing us to increase our forecasts for FY20 and beyond and our ultimate valuation of the company.
Companies: Pan African Resources
Hydrodec has released an encouraging AGM statement this morning with a number of positive developments which should start to crystallise the upside in the shares, notably the sale of the Australian operations and the potential addition of a complimentary product that could drive higher utilisation earlier than previously expected. The utility focus and market developments are also making progress, justifying the Group’s strategy and the Board remains confident in the outlook for 2019 and beyond. Reiterate buy.
Companies: Hydrodec Group
Despite our last published FY19 forecasts reflecting a more conservative production ramp-up than management guidance, SDX’s guidance revisions have resulted in a further downgrade to our short-term cash flow forecasts and NAV. We reduce FY19e production from 4.3kboed to 3.4kboed (-21%) and project more moderate growth in SDX’s Morocco gas demand with an associated RENAV impact of -42%. Key drivers of management’s downgrade include lower Sebou gas demand growth, a higher than anticipated water cut at North West Gemsa and a delay to production ramp-up at South Disouq. Our valuation falls from RENAV 86.5p/share to 49.8p/share (-42%), while our core NAV (producing assets and South Disouq) falls from 70.1p/share to 45.0p/share (-36%). Based on our latest estimates, we expect SDX to end FY19 with c $4.9m of net cash on the balance sheet.
Companies: Sdx Energy
We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
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Iofina’s placing, subscription and open offer has raised gross proceeds of £7m, which allows it to accelerate the development of its next iodine plant and reduce high cost debt. Gearing further benefits from the debt-for-equity swap, leaving it well positioned to refinance its remaining debt by July next year. Iodine prices continue to improve, already reaching our long-term forecast of $30/kg, highlighting the scope for estimate upgrades if this trend continues. Interest in Iofina’s CBD ambitions is high. While this complementary opportunity is embryonic, it offers exposure to strong growth and high-margin potential.
The market has not faced quite so many conflicting challenges for a number of years, whether related to global geopolitics, trade wars, ongoing Eurozone issues or the “will they, won’t they” saga of Brexit. In our Best Ideas, we sought to highlight stocks that present investors with interesting opportunities following recent market moves. Those stocks, we believe, warrant investor attention, in many cases for uncorrelated or stockspecific reasons, regardless of the near-to-medium term market direction. These stocks, in general, represent attractive and well-managed businesses or assets, with share price catalysts and where valuations or recent stock performance provide investors with a good entry point.
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Falcon Oil & Gas is an international oil and gas company focussed on the acquisition, exploration and appraisal of unconventional oil and gas assets. Falcon has a 30% interest in three exploration permits in the Beetaloo Sub-basin, in the Northern Territories (NT), Australia - covering 4.6million gross acres and estimated to contain 496 trillion cubic feet (TCF) of original gas in place (OGIP) within the Middle Velkerri B dry gas shale play. As part of a transformational farm out to Origin Energy in 2014, the Company carries up to A$113m (US$80m) for the costs of the upcoming Stage 2 and 3 work programme to drill and hydraulically fracture stimulate four further horizontal wells and evaluate the potential of the Kyalla and Velkerri liquid plays before confirming commercial production flow rates in the most prospective play(s). On Friday, the Company conditionally raised gross proceeds of cUS$9m (c£7m) to primarily fund Falcon's share of the next cUS$100m of capital expenditure on the Beetaloo work programme and its ongoing G&A. By the end of the Stage 3 work programme, a total of US$300m would have been spent by Falcon and its partners in determining the commerciality of the Beetaloo. Through its transformational farm-out deals with Hess and Origin, we estimate Falcon's share of this gross cost to be approximately US$15m, or 5% of the total capex to date for its 30% working interest. Prior to development we would expect Falcon to monetise its interest and exit the play. Given the multi-TCF potential, strategic location and multiple commercialisation options, we believe Falcon offers early entry to a world-class play with potential upside far greater than any of its peers. We initiate coverage with a price target of 41p and a BUY recommendation.
Companies: Falcon Oil & Gas
Sirius Minerals is now at the crucial juncture of its US$3.8bn Stage 2 financing package for the construction of its paradigm-shifting North Yorkshire polyhalite project in England. The company has successfully completed the first phase (henceforth, ‘Stage 2a’) of this package, raising US$425m of equity and a further US$400m via the issuance of eight-year convertible bonds. We now look to the US$3.0bn ‘Senior Debt Event’ (or ‘Stage 2b’), which we expect will be completed over the summer of 2019. We expect this seminal event to catalyse a major re-rating of the shares, as it is in our view effectively the key to unlocking Sirius’s vast value potential. Beyond that, while Sirius would still be some years from becoming cash generative, an investment in the company should become progressively de-risked and enjoy significant value uplift as it advances towards production, we believe. Our Risked NPV estimate is 40p/share post the Senior Debt Event.
Companies: Sirius Minerals
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