Industry Reports

Deutsche Bank Reports Summaries

071112 Deutsche Bank Report - Notes from Ohio Tour 2007

Deutsche Bank - Equity Research

* Highlights from Ohio investor trip

Deutsche Bank recently sponsored an Ohio investor trip.  We visited a variety of public & private companies, all in the paper & packaging sector.  The companies visited on our tour included: Glatfelter, Greif, NewPage and Sonoco.  Summary comments are found below.

* Glatfelter – Chillicothe leverage could exceed current targets

After struggling during the first 9-12 months of ownership, GLT appears to be putting Chillicothe on track.  While the Chilicothe complex is large and sprawling with several older buildings, the core machines are relatively large and appear well-maintained.  The mill has absorbed $550MM of invested capital since 1990.  The mill is well-positioned from a fiber cost/supply standpoint. 

* Greif – Shifting toward more aggressive growth

GEF is pointing to growth in offshore industrial packaging markets as well as well as adjacent domestic packaging markets.  Well- executed acquisitions coupled with 2009 performance targets could generate impressive financial leverage.

* NewPage – Duties and currency could restructure global coated industry

NewPage has successfully pressed antidumping claims against Asian coated paper producers.  NewPage will file antidumping claims against the Europeans.  When coupled with FX moves, the European anti-dumping case could accelerate a restructuring of the entire global coated paper sector.

* Sonoco – Using scale and technical capabilities to grow display market share

A highly-fragmented display market offers significant growth opportunities. Display & fulfillment operations can enhance a growing position in value-added consumer packaging.

* Valuation & Risks

For Glatfelter, our target price is based on approximately 90% of 10x our peak EPS estimate. We think the stock could reach 10x peak EPS, based on historical trading patterns, and we have chosen to discount this level by about 10% based on risks the company currently faces. Downside risks include execution risk in restructuring, decrease in volume, economic risk, rising raw material costs, political risk. For Greif, we focus on P/E ratio, rather than the EV/EBITDA metric, because of its dual-class structure. Our target price of $75 is based on 17x our '09 EPS estimate of $4.50.  Our multiple is at the high end of GEF's peer group (13x-17x) due to the company's superior financial performance and higher growth rate.  Downside risks include economic downturns, volatile input costs, currency and political risks.