• Q4e: clean EBIT of ~SEK -90m, Q1 should be better
• Pulp prices down, but hikes announced
• Fair value range: SEK 9-16/sh

This is our earnings bridge

We expect Q4 clean EBIT of ~SEK -90m, down from SEK 29m in Q3'24 (Q4'23 SEK -100m). The main effects q-o-q are likely: SEK -30m from lower pulp prices, SEK +11m from FX, SEK -10m from wood costs, and SEK -90m from the annual maintenance. We arrive at a Q4 clean EBIT of ~SEK -90m. Note that Rottneros will book SEK +65m-70m in one-off gains related to the sale of emission quotas, i.e. reported EBIT will likely be SEK -20m-25m. Q1 will likely be better than Q4, driven by a reversal of the annual maintenance stop and somewhat better volumes. We expect Q4 clean EBIT of SEK 5m-20m.

Pulp prices down, but hikes announced

Pulp prices overachieved in H1 and fell in H2, as some H1 extraordinary events were hard to replicate and Chinese demand was lower alongside more supply. European softwood and hardwood prices have dropped 9% and 31% from ATHs in May, respectively (Chinese softwood and hardwood -9% and -27%, but now up ~4%). Note that many of the largest players have announced 3-10% price hikes from January '25 (e.g. Suzano). The pulp market balance was more challenging in '24. Although net supply growth landed at only 2%, demand growth of -0.4% was weak, and the utilisation rate fell to 87% (89% in '23). We expect it to improve in '25/'26, reaching ~90%. Rottneros is striving to broaden its revenue base, and management has achieved its target of raising the percentage of earnings derived from less cyclical sectors to ~10% (vs. 3% in '19).

Fair value range of SEK 9-16/share

Rottneros is trading at an EV/CE of ~0.9x, which compares to the 10Y historical average of ~0.9x. ATRoCE averaged ~12% from ’18-’23, and we forecast ~3% for ’24e-’26e, suggesting a value of SEK ~2-14/sh. Note that a mid-cycle valuation approach points to SEK ~13/sh. We stick to our fair value range of SEK 9-16.