• Q4e: Clean paper EBIT of ~PLN 10m
• Paper prices down, demand muted
• Fair value range of SEK 40-80

This is our earnings bridge:

We expect Q4 Paper EBIT of ~PLN 10m, down from PLN 20m in Q3'24. The main effects q-o-q are likely: PLN -18m from lower paper prices, PLN +5m from marginally better volumes (seasonality effects) and PLN +3m from higher pulp prices. Pulp EBIT will likely be ~PLN 31m lower q-o-q driven by lower pulp prices and maintenance at Rottneros. Hence, we expect Q4 group EBIT of ~PLN -2m vs. PLN 48m in Q3'24. Arctic Paper will also book a ~PLN 30m one-off gain related to energy compensation. We expect Q1 Paper EBIT of PLN 10-20m driven by lower pulp prices.

Paper prices down, demand muted

Paper prices declined by ~1% in Q4 q-o-q (driven by coated fine), but the paper markets are helped by 15% supply cuts in '24-'25 (~3.8mt). However, demand growth has abated lately, which leaves the utilisation rate lower vs. historically (~89%). Nevertheless, the utilisation rate has improved vs. '23 (~70%) and landed at ~79% in '24. For '25e, we see a utilisation rate of 81-82% as the full capacity cuts are visible. Our paper price model points to prices increasing ~5-10% in '25, driven by higher pulp prices and improved capacity utilisation in '24, but we expect demand to stay relatively flat. Arctic Paper is well-positioned, as it is a leading premium design/book paper player with a decent overall position on the cash cost curve.

Fair value range of SEK 40-80

The company is trading at an EV/CE multiple of ~0.8x and a '25e EV/EBIT of ~6.0x. We apply three valuation methodologies, and arrive at a fair value range of SEK 40-80. The fair value range implies an EV/CE range of 0.7x-1.5x, or a '25e EV/EBIT of 5x-11x.