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Research Tree provides access to ongoing research coverage, media content and regulatory news on SVENSKA CELLULOSA AB SCA-B. We currently have 7 research reports from 1 professional analysts.
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SVENSKA CELLULOSA AB SCA-B
SVENSKA CELLULOSA AB SCA-B
Weakening (emerging market) growth is unnerving
10 Nov 16
SCA’s operating performance continued to weaken, with the Q3 16 results coming behind both consensus and AV’s estimates. Sales were flat (both yoy and qoq) at SEK29bn. Organic growth erosion – ‘NIL’ vs. 2% in Q2 16 and 3% in Q1 16 – intensified through 2016. Moreover, the sluggish emerging market’s (31% of sales) organic growth of 4% (vs. 6% in Q2 16 and 9% in Q1 16) was a major disappointment. Hygiene (personal care + tissues), which has been a backbone of SCA’s business growth, witnessed serious difficulties in Q3. Personal care’s organic growth was flat (vs. 5% in Q2 16 and 6% in Q1 16), while tissues’ growth was reduced to only 1% (vs. 3% in Q2 16 and 4% in Q1 16). Surprisingly, prices and volumes were flat in both divisions, except for a minute 1% price/mix improvement in tissues. On the other hand, the weakness in forest products (sales down 4.4% yoy and 4.1% qoq) was broadly anticipated. Despite the top-line disappointment, there was some profitability consolation. Adjusted EBIT came in at SEK3.6bn (+5.8% yoy; +7.1% qoq), primarily benefiting from cost savings and lower input costs – more than offsetting higher selling/marketing expenses in hygiene and the effect of a weaker pound. Unlike the comparable quarters, which were marred by hefty impairments, and one-time tax and anti-trust cases related provisions, a relatively blemish-free Q3 resulted in an attributable net income of SEK2.2bn (vs. SEK502m in Q3 15 and SEK76m in Q2 16). Reported OCFs remained healthy at SEK4.3bn (-4.4% yoy; +13% qoq), while capital spend (SEK2.2bn; +23% yoy; +7.9% qoq) was aggressive – due to the Östrand pulp mill expansion and construction of a new incontinence products facility in Brazil. Net debt was down (3.6% vs. end Q2) to SEK34bn. The highlight of the quarter was the decision to split SCA into separately-listed entities – hygiene and forest products. While this proposal is to be presented at the 2017 AGM, the listing of the new entity – which would be hygiene – is targeted by H2 17.
Waning organic growth and extraordinary charges add to the bottom-line's woes
20 Jul 16
SCA’s Q2 16 results were below consensus estimates, with fading organic growth and extraordinary charges being the major setbacks. Organic sales growth, a key performance measure, was reduced to only 2% (vs. 3% and 5% in Q1 16 and Q4 15, respectively). Below is an illustration of SCA’s organic growth by segments for the past six quarters: Besides slowing growth in hygiene (SCA’s strategic focus), an extremely difficult operating environment in forest products (both weak prices (-3%) and volumes (-4%)) has been a key problem area. Moreover, all the organic growth came from emerging markets (+6%; 31% of sales), while the mature markets (69% of sales) were flat. Sales and adjusted EBIT came in at SEK29bn (-0.5% yoy; +3.2% qoq) and SEK3.4bn (+6.3%; +4.9% qoq), respectively. Despite growth pressures, the hygiene business margin was up 100bp yoy due to the continuation of cost savings and lower input (energy and raw material) prices in tissues. However, in the case of forest products, even the benefit of lower input prices were insufficient to avert a faster than expected profitability erosion. A provision of >SEK1bn has been made for ongoing anti-trust cases in Chile, Colombia, Poland, Spain and Hungary. Also, SEK340m of restructuring costs have been recognised pertaining to tissue plant closures in France and Spain. Although, some cushion comes from the SEK200m capital gain on the divestment of IL Recycling. Further down, SCA’s adversities amplified with the recognition of a SEK1.3bn provision for ongoing tax cases in Sweden and Austria. As a result, the net profit for the quarter was almost wiped-out – SEK79m vs. SEK2.1bn in Q2 15. Given the (so far) non-cash impact of the one-off charges, SCA’s reported OCFs remained healthy (SEK3.8bn; +25% yoy; +49% qoq). The group ended Q2 with a net debt of SEK35.5bn vs. SEK33.4bn at end Q1.
Early signs of waning organic growth
03 May 16
Unlike previous years, SCA’s start to 2016 was a bit disappointing. Even though profitability was marginally ahead of consensus estimates, thetop-line was weak as currency benefits retreated (resulting in a 4% negative impact), organic growth reduced to 3% – the lowest since Q4 14 and forest products’ price/mix weakened (-5%). Q1 sales were SEK28.2bn (+0.8% yoy; -3% qoq) and adjusted EBIT came in at SEK3.2bn (+13% yoy but down 5.4% qoq). While Forest Products’ EBIT weakness (-19% yoy; -10% qoq) was anticipated (as the gains of 2014-15 seemed unsustainable), the hygiene (tissues + personal care) business too came under some sequential pressure (down 5-10%). Net profit came in at SEK1.9bn (+13% yoy; -32% qoq), although the sizeable sequential impact was primarily due to SEK970m of gains on the sale of the Industrivärden (direct) stake in Q4 15. Reported OCFs were up 22% to SEK2.5bn as the yoy profitability benefit was supported by relative working capital efficiencies – use of SEK721m vs. >SEK1bn in Q1 15. Although with the closure of the Wausau acquisition, SCA’s net debt increased to SEK33.4bn vs. SEK28.8bn at end-2015. The Forest Products division is expected to come under more pressure in Q2 16, as management has guided SEK60m of negative earnings impact due to maintenance shutdowns. In April 2016, SCA sold its 33% stake in IL Recycling for SEK236m with management guiding for a capital gain of SEK200m to be recognised in Q2 16.
Organic growth on track, though Yuan devaluation bothered a bit
29 Jan 16
SCA’s business growth story remains intact, despite growing economic upheaval in most of its focus markets. While the full-year results were ahead of expectations, Q4 witnessed some sequential slowdown in Forest Products and flattening growth in Hygiene (Personal Care + Tissues). *Achieved highest annual organic sales growth since 2012* Sales: Q4 – SEK29bn (+6% yoy; +4% organic growth); 2015 – SEK115bn (+11%; +5% organic growth; in-line with AV estimates) Q4 organic growth was supported by strong volume growth (+7%) in Personal Care and an improving price/ mix (+2%) in Tissues. Even Forest Products managed a modest 1% organic growth. Hygiene growth was once again driven by a robust contribution from emerging markets (+11%) and resilient mature markets (+2%). Another key factor was a weaker SEK (down 14% vs. the US dollar). Although weakening global economic sentiment and a stabilising SEK translated into flat sequential growth. For the full-year, organic growth trends in emerging and mature markets were similar to Q4, while SEK tailwinds rendered a 23% benefit. *Profitability ahead of expectations* Adjusted EBIT: Q4 – SEK3.4bn (+7.2%; flat qoq); 2015 – SEK12.8bn (+9.2%; 2.1% ahead of AV estimates) While costs savings (especially SEK260m in Q4 and SEK930m in 2015 from the Georgia-Pacific operations) continued to deliver, the benefit from lower energy prices amplified (SEK128m in Q4 and SEK275m in 2015) as the year unfolded. However, USD-denominated raw material prices (mainly pulp – impacting the tissue business), higher marketing spend (especially on incontinence products) and the discontinuation of recognition of gains on forest swaps with effect from 2015 (vs. SEK336m of gains in 2014) culminated in a full-year margin contraction of 20bp – though better than our earlier expectation of a 40bp contraction. Net attributable profit: Q4 – SEK2.8bn (+96%, +4.6x qoq); 2015 – SEK7bn (+6.1%; 6.3% ahead of AV estimates) An exceptional gain of SEK697m (including SEK970m profit from the sale of 2.8% direct stake in Industrivärden) and absence of hefty asset impairments (unlike Q3) culminated in an abnormally-high Q4 bottom-line. SCA now holds an indirect 7.9% stake in Industrivärden (primarily through its pension funds). *Healthy cashflows supported strong dividends* The 2015 operating performance was reflected in the group’s cashflows, with full-year reported OCFs galloping by 18% to SEK14bn. Although capex was up by 32% to SEK7.6bn due to growth investments in Brazil (incontinence products) and at the Östrand pulp mill in Sweden, net debt was reduced to SEK29bn (-18%; lowest level since 2006), partly facilitated by c.SEK2bn of proceeds from the Industrivärden divestment. However, completion of the SEK4.2bn Wausau Paper acquisition in January 2016 is again likely to result in a build-up of borrowings. Nevertheless, the management proposed a full-year dividend of SEK5.75 per share (+9.5%) – 2.2% ahead of AV's estimate.
Barring some one-off losses, strong business performance continues
30 Oct 15
SCA continued to enjoy strong business momentum in Q3 15 as well, thereby allaying growing concerns about its strong emerging market focus. Q3 sales came in at SEK29.1bn (+9.4% yoy; flat qoq) with a 5% organic sales growth. Organic growth was primarily driven by the strong performance in emerging markets (+14%) in the hygiene business. While China and Russia favourably contributed to tissues, LatAm and Russia were the key drivers for the personal care segment. Forest products continued to post lacklustre results with a strong performance in packaging and pulp moderating the falling demand for paper. The weak SEK (down 22% vs. USD) was another contributing factor to the top-line, but sequentially fading forex gains and weakening emerging market sentiment did result in flat qoq sales growth. Adjusted EBIT came in at SEK3.4bn (+14%; +7.6% qoq). In addition to the top-line benefits, profitability was further augmented by cost savings across segments (especially SEK230m in tissues from the Georgia-Pacific acquisition) and lower energy costs (SEK73m, mainly benefiting forest products). Higher raw material costs (SEK758m, primarily impacting tissue business) due to a strong dollar and continuously higher marketing spend (particularly in personal care) dampened some of the gains. The group recognised SEK2.5bn of one-off costs, o/w SEK1.8bn was asset impairments, primarily pertaining to the write-off of a newsprint paper mill. Consequently, Q3 net profit plummeted 73% to SEK502m (-74% qoq). Nevertheless, strong cash flow generation (reported OCFs were up 9.4%) resulted in net debt reducing to SEK33bn at the end of Q3 vs. SEK35bn at the end of FY2014. Management guides SEK70m of costs associated with maintenance shutdowns in the forest products division in Q4 15.
Encouraging read-outs across consumer plays
23 Oct 15
Despite the emerging markets mayhem and growing global economic uncertainty, SCA’s consumer peers have reported good Q3 performance figures. Starting from Unilever to Reckitt Benckiser and Kimberley Clark, all have posted good growth in their respective businesses.
Panmure Morning Note 01-12-16
01 Dec 16
Consistent with the FY16 trading update/pre-close on September 14, today’s FY16 results are in line with our and consensus underlying PBT expectations of £12.5m (+22.5% YoY). The total FY16 dividend is up 36%, covered 3.4x, whilst net cash is £6.9m (+53%). FY16 represented another good year of execution, and FY17 has started well. The company's business mix is now more diverse across geographies (International accounted for 26% of total sales vs 21% in FY15) and we see CCT’s increasing diversity in retail distribution as both a further risk-mitigation and opportunity driver. We make no changes to our FY17 and FY18 PBT forecasts of £13.5m and £14.5m (albeit, we make some changes to the constituent parts) and introduce a FY19 PBT of £15.5m. We maintain our BUY and TP of 635p.
Strong H2 expected
30 Nov 16
H1 results were in line with expectations with PBT of £9.0m, EPS of 9.9p and DPS of 7.2p. The NAV / share is 253p. We expect the company to have a strong H2 based on its forward sales position and the timing of developments coming through. Telford has a strong balance sheet, a large development pipeline and impressive forward sales position, as well as good levels of demand for its product and geography from a diverse group of buyers. No change to forecasts at this stage.
Civil: No Reflation here, only a Race to the Bottom
05 Dec 16
The strengthening of the US dollar since the election of Trump is adding to the headwinds in the airline industry: over-capacity and falling yields. The airline industry, which is expected to generate $8bn of free cashflow in 2016 on $600bn of capital employed, needs to spend $120bn annually to maintain current delivery rates. Deferrals and down-gauging is now spreading to narrow-bodies as more and more airlines review their capex plans. We expect acceleration of seat densification as airlines look to sweat their existing fleets. We now expect deliveries to fall by 5% over 2015-18 as opposed to our previous forecast of flat growth. Aftermarket may also suffer as seat densification helps cut number of flights. This leads to reduction in our EPS forecasts for key Civil Aerospace names: Rolls-Royce, Meggitt, GKN and Senior.
Joy of Techs
21 Nov 16
ICT evolution is driven by technological development as advances are made which both meet and shape customer requirements. Our 2011 note No such thing as a telco described the modern reality in that former ‘telcos’ now deliver varying elements of a range of managed services. We built on this theme last year, exploring in further detail their evolutionary paths, operating fundamentals, and cashflow yield similarities. In the consumer environment, demand for bundles of technology is complemented by demand for content. Across the pond, the mooted combination of AT&T and Time Warner typifies the bundled need of ‘pipe’ and content, since unbundled alternatives such as FaceTime and WhatsApp can be easier and clearer to chat over, and Amazon and Netflix are easier to watch anywhere. In the UK, BT’s defensive actions cover delivery, content and capabilities, acquiring EE yet also buying football rights. While TV was long ago added to triple play to become quad play, voice is now merely an app, and fixed and mobile seen as just dumb pipes: it's the content that will influence consumer choices. Growth of TV and film as well as music and gaming over IP leads to UK small cap opportunities. In context of the drive to maximise value from pipes and access by offering content and data, we look at some amongst the potential tech small cap beneficiaries: Amino*, Keyword Studios, ZOO Digital*, 7digital*, KCOM* and CityFibre*.
Forward sale of two developments increases forecast visibility further
01 Dec 16
We note Watkin Jones’ announcement today confirming that the company has forward sold another two developments, in Cardiff and Belfast, to institutional investors. We leave forecasts unchanged but acknowledge that these further sales increase the visibility on earnings. We now assume c.65% of FY17 gross profit is derived from projects that have been forward sold. We continue to believe the shares are undervalued given the high levels of earnings visibility that the forward sales model generates, the low leverage risk with in excess of £30m of net cash and the structural growth in both Purpose Built Student Accommodation (PBSA) and the Private Rented Sector (PRS). On FY16 earnings, which the company confirmed are in line in its recent trading update (17th November), the shares trade on 9.6x. This falls to just 8.7x in FY17 with c.65% visibility after just two months of the financial year. We would hope that almost all of FY17 earnings will have been forward sold by the half year end mirroring the experience in FY16. The prospective yield of 5.3%, twice covered by earnings and underpinned by a strong balance sheet, remains attractive.
FY16 ahead of expectations; leads to upgrades across the forecast period
01 Dec 16
The ten-month trading statement released this morning indicates that trading has remained solid post the interims and FY16 results will be ahead of market expectations. As a result, revenue forecasts increase 2.1% in FY16 to £689.0m (prev. £674.9m). The August price increase on stable volumes lead to increased margin assumptions magnifying the impact on profitability with PBT increasing 4.2% to £37.5m (prev. £35.9m). Conservatively, FY17 and FY18 forecasts increase in line with previous growth assumptions off the higher base in FY16. This approach is prudent in the face of continued currency volatility and low visibility on UK consumer spending into FY17. The referendum could have been a major headwind with c. 60% of COGS sourced in Euros. That Headlam has been able to offset the impact with price rises that have had little impact on volumes highlights the resilience of the business model and its market leading position in the industry. Looking forward the UK consumer will remain key to its performance. However, forecasts assume just 1% revenue growth in FY17 and FY18 and operating margins remain well below the historic peak offering the potential for operational improvements to offset any top line weakness.