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Industry
Reports
Deutsche Bank Reports Summaries
060707 Deutsche Bank Report - Dr. Paper's Weekly Wrap-Up
Deutsche Bank - Equity Research
Are we in a "sleeper" cycle? Improving demand, supply
reductions &
FX moves quietly creating a better-than-expected upturn.
Prices
continue rising in US and are beginning to move in Europe &
Asia.
Meanwhile, Euro's continue overdue restructuring.
Pulp prices continue to rise - Asia, Europe & NA. US NBSK
prices
are @ $725/mt, the highest level since Feb 1996. With
inventories
in good shape and demand good, prices look to be heading
higher.
060629 Deutsche Bank Report - Dr. Paper's Weekly Wrap-Up
Deutsche Bank - Equity Research
IP asset sales. IP sold its Roanoke Rapids, NC kraft paper
mill & a
bag plant for $155MM along with 2 contingent payments. IP
also
negotiating sale of BZ forest plantation & mill site to VCP
for
$600MM+. Trade sources suggest IP exploring sale of 2nd
plantation
in No. BZ. Neither BZ deal was in IP's original
restructuring
program.
Wood panel prices remain under pressure. OSB prices dipped
$15/msf
this week. Decline in plywood was muted. Based on DB
estimate
of “cash cost”, we estimate markets to have $20-30 of
further
downside.
Odds n' ends. 1) RKT warned about $3.5MM mill outage, 2)
Campbell
Group & Obsidian boosted unsolicited LFB bid by $2/share, 3)
CN$
appreciation looks like big Q2 issue, OCC costs could be the Q3
topic.
060629 Deutsche Bank Report - How Much Is IP’s Brazilian
Land Worth?
Deutsche Bank - Equity Research
International Paper {Ticker: IP.N, Recommendation: Buy}.
Is IP's Brazil land really worth that much?
A Brazilian business paper, Valor, is reporting that the
Brazilian
paper company, VCP, has put in a bid of over US$600MM on a
250,000/acre forestry plantation and mill site. Both IP and
VCP
have declined comment. The Tres Lagoas site is in the state
of Mato
Grosso do Sul has 180,000/acres of forestry plantations.
Implications?
If correct, a $600MM+ value on Tres Lagoas has at least 2
important
implications for IP shareholders: First, it underscores
the
tremendous value potential is IP's 1.2MM/acre Brazilian land
base.
Beyond the 180K/acres of planted forests at Tres Lagoas, IP has
another 185K/acres of planted forests at the roughly 750K/acre
Amapa
site in Northern Brazil.
What's it mean for shareholders?
Second, this suggests that IP could easily fund a joint venture
pulp
& paper mill in Brazil (we estimate IP's share of the total
cost,
including land value at $1B or less) with no net cash flowing
into
Brazil. Indeed, with potential pretax proceeds of $1.5-1.6B
from
Tres Lagoas, Amapa and Impacel, IP could get its JV mill and
still
generate surplus cash.
Valuation/Risk
Our target price is based upon 2.0x book value, 5.9x peak
earnings,
10.7x normalized earnings, 4.6x peak EV/EBITDA, and 6.6x
normalized
EV/EBITDA. Most of these ratios are at slight premiums to the
group
averages. Historically, IP tends to command a premium to the
group
averages, based on its size, diversity, and consistency of
earnings. We remain watchful about capacity growth abroad as
well
as the movement of jobs and manufacturing facilities
overseas. We
are also concerned about the potential use of proceeds from
asset
sales. Other risks include energy costs and currency
translation.
060629 Deutsche Bank Report - INDUSTRY
ALERT
Deutsche Bank - Equity Research
The fireworks have started early. Even with the $60/ton June
price
hike on uncoated free sheet papers still easing into place, we
are
beginning to hear talk of another increase in September. With
YTD
industry operating rates in the 95% range, mill inventories
declining and pulp costs continuing to rise, this news shouldn't
be
surprising. Most industry sources report that while volume
trends
have eased a bit over the last couple of months, supplies
remain
relatively tight. In particular, supplies of cut-size paper
are
reportedly quite tight.
Who would benefit? International Paper is the largest
uncoated
white paper producer in North America and globally. Within
North
America, Weyerhaeuser is #2 and Domtar is #3. Of these
three,
Domtar is the most leveraged play on a turnaround in uncoated
free
sheet pricing. Two of the smaller cap names on our coverage
list
also have significant uncoated white paper leverage: Glatfelter
and
Wausau. Both Glatfelter and Wausau have recently acquired
uncoated
white paper mills and a continued market upswing should ease
their
integration efforts.
060626 Deutsche Bank Report - Second Quarter 2006 Estimate
Revisions
Deutsche Bank - Equity Research
Wood Doesn't Look Good.
Rising interest rates, slowing housing markets and incremental
supply have dropped lumber & panel prices to their lowest
levels in
several quarters. Lumber looks like it will average about
$337/mbf
in 2Q, down from $378/mbf in 1Q and $405/mbf in 2Q05. We
now
estimate 2Q average structural panel prices at $346/msf, down
from
$374/msf in 1Q and $390/msf in 2Q05. Some of this decline was
in
our numbers. With this note, we make some further
downward
adjustments.
Pulp & Paper Prices Rebounding
Global pulp markets remain unexpectedly strong. Current NBSK
list
prices are $725/mton in NA (up from $620/mton last September).
Several producers have announced another $20-30/mton for
July.
Uncoated free sheet has seen the best price move. A 1Q
increase was
followed by $40-50/ton in April. Another $60/ton is currently
in
the market and appears to be sticking. Containerboard is
also
strong, with the market still balanced and prices trending
upward.
Packaging is mixed
Flexible packagers could see margin improvement over the next
few
quarters as resin costs have flattened/slipped. The situation
is
more complex for rigid packagers. Cost inflation has
continued to
outpace glass and metal container prices.
Risks & Valuation
The last several weeks have seen a broad-based sell-off across
our
coverage universe. Some caution appears warranted.
We've become
increasingly concerned about a "hard landing" in wood-based
building
products (lumber, plywood, OSB). The overall industry is tied
to
the industrial cycle, so any slowdown in economic growth could
jeopardize current price hike initiatives. Paper co's are
trading
around 1.5X book value and 4.1X estimated “peak”
earnings, more than
half of the historically high “peak” multiple.
Pkg co's are trading
around 13.7X our '07 EPS estimate, with tight variance.
Overall the
sector is trading in line with historical norms.
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