Morning Equity Briefing |
Smurfit Kappa Group
(SKG ID)
M-Real the latest to announce kraftliner price increase
Barry Dixon
| Closing Price: | 895c | Rating: | Outperform | 30/06/09 |
FACTS: M-Real is the latest paper company to announce a price increase for white-top kraftliner. The company is to increase prices by €50/tonne from April 15th. This follows the announcement by Mondi that it plans to increase white top kraftliner prices by €40-60/tonne from March 1st. The increase is blamed on higher input and logistics costs.
ANALYSIS: SKG is the largest producer of kraftliner in Europe with capacity of over 1.8m tonnes (M-Real has 375,000 tonnes of kraftliner capacity). While a significant proportion of the product is used internally in the production of corrugated boxes, SKG is a net seller of circa 500,000 tonnes of kraftliner – brown and white-top. An increase of €50/tonne on all kraft prices would add circa €25m to group EBITDA on a full-year basis.
DAVY VIEW: This latest move by M-Real is a further sign of the positive pricing momentum in the sector. It is likely that SKG will follow at some point. This is positive for the company's earnings forecasts. At 4.1 times 2011 EBITDA, we believe this is not reflected in the company's share price. The stock should be trading at a multiple of closer to 5 times – implying a share price of 1200c.