Bergs Timber - Q4 likely a strong quarter

Q4 likely strong – good market outlook Debt-free, ready to grow organically and via M&A Set for growth but only trading at ’21e EV/EBITDA of 6x Q4 likely a strong quarter – good market outlook We estimate Q4’20 EBITDA of SEK 45m, down from SEK 53m in Q3’20. Q4 will likely be down q-o-q due to seasonally-lower volumes in Further Processed, but still be a strong quarter. Sawmills EBITDA will likely increase q-o-q due to higher volumes. Bergs will also sell its remaining stock levels from its Swedish sawmills in Q4, but it has not stated the size of this stock level.

This will have a positive contribution to earnings in Q4e. The outlook continues to appear strong, and the increased demand for DIY products (COVID-19) will likely continue in H1’21. We raise our EBITDA estimates by 1% in ’21e/’22e on the continued good market outlook.

The Q4 results are due on 3 February. Expect a strategic plan and financial targets update Following the divestment of its Swedish sawmills, Bergs is now a more downstream-focused company with less cyclicality in its earnings and exposure to structurally growing end-markets (building with wood is more environmentally-friendly). Its remaining assets are modern and well-invested, meaning that the cash flow generation will be strong.

Combined with a debt-free balance sheet, we see plenty of room to grow both organically and inorganically. Bergs will update its strategic plan and financial targets around the beginning of March. Here, we expect the company to communicate an organic growth target of 5-10% p.

a. driven by organic growth in its Further Processed segment, and with growth from M&A on top. We also expect the company to revise up its profitability targets.

New Bergs is trading at a ’21e EV/EBITDA of ~6x We expect the ‘new Bergs’ to generate EBITDA of ~SEK 200m next year i. e. it is trading at a ’21e EV/EBITDA of ~6x.

In our view, EV/EBITDA will be the most relevant multiple for the ‘new Bergs’ as depreciation will be higher tha.