Industry Reports

Deutsche Bank Reports Summaries

080205 Deutsche Bank Report - WPP's 4Q in 100 Words

Deutsche Bank - Equity Research

Wausau Paper {Ticker: WPP, Closing Price: USD 8.47, Target Price: USD 17.00, Recommendation: Buy}.

* Matched recently reduced guidance. Underlying = ($0.04), in-line w/ DB & FC.  Sold 1800 acres of Timberland for $2K+/acre & after-tax gain of $1.2MM. Spec. and Printing & Writing segments both disappointing. 

* Segments:

Towel & Tissue (Bay West). EBIT = $10.9MM, 3Q07 = $11.1MM, 4Q06 = $12.9MM. EBITDA = $376/ton. FY07 EBITDA = $67.1MM. Ship's +7% y/y, w/ growth in higher margin prod's.   Higher costs for fiber & “parent rolls” created headwinds.

Printing & Writing. Weak. Excluding Groveton closure charge, EBIT = $(6.1MM), 3Q07 = $(1.3MM), 4Q06 = $2.0MM. Underlying EBITDA looks like -3MM and equivalent to EBITDA loss of $37/ton. Prices rose 5% y/y, but were mitigated by higher fiber costs & weak volumes. With an “average” price/ton of $1285, WPP has low-price/low-margin tonnage w/in its mix.   W/ pulp at $880, there isn't much “wiggle room” for WPP at low end of mkt. Will “3-Pt Plan” “fix” this segment?

Specialty Papers.  Sluggish.  EBIT = ($2.7MM), 3Q07 = $2.2MM, 4Q06 = $0.7MM.  Price/mix gains more than offset by lower vol's & higher pulp costs.  Weak economy hitting some bldg-related products.  Mosinee mill outage also hurt. 

* Other: 1) Sold 1800/acres for after-tax gain of $1100/acre. Avg price = $2000+/acre, 2) Rising fiber costs squeezing margins – WPP currently buys 475K/tpy, 3) 540K shares remain on rep. authorization, 4) Strategy & structure: DB would like to see WPP focus on tissue and consider exit routes for paper. With LTM EBITDA of $67MM, Bay West's value may equal WPP's EV ($580MM).

* Change in View?  Disappointing Q4, continue to struggle w/ 2 paper bus's.  WPP's structure needs to change to maximize value & they know it.  We maintain Buy rating.  Reducing EPS '08 est, from $0.25 to $0.20.  Initiating '09 est. at $0.60.