Bergs Timber - Starting to deliver on its new growth strategy

Increasing its wood protection capacity Could add 2% to EBITDA, ROCE of ~15% Trading at ‘21e EV/EBITDA of ~7-8x Increasing its wood protection capacity by ~10,000 m3 Bergs Timber announced today that it will increase its Linax capacity. Linax is linseed oil impregnated wood (own brand). The investment will increase Bergs Linax capacity from ~5,000 m3 to ~15,000 m3 p. a.

The investment amounts to SEK 22m and Bergs schedules the production to start up in ‘21/’22. We estimate that the new capacity could increase Bergs EBITDA by ~2% vs. its clean ‘20 EBITDA.

Here, we have assumed an avg. selling price of SEK 5,000/m3 and used Bergs EBITDA margin target of 9%. If we assume a depreciation time of 20 years, we find a ROCE for the investment of 15%.

We see the investment as positive as Bergs starts to deliver on its new growth strategy. In addition, it will increase Bergs exposure to value-added wood products which are less cyclical and have historically achieved higher margins vs. its sawmilling segment (7-9% vs.

sawmilling at 4-5%, avg. 10 yrs). Targets to grow 10% p.

a. organically and through M&A 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). Value-added wood products now make up the majority of its sales and EBITDA, and we expect Bergs to achieve higher and more stable group margins as value-added wood products now make up a larger share of its earnings.

The investment is in-line with Bergs strategy of growing its wood protection and joinery (windows, doors, outside furniture, etc. ) segments. It targets to grow 10% p.

a. driven by both organic growth and M&As. The isolated effect of the investment is small for Bergs, but the company has announced that it has identified investments of ~SEK 500m for ’21-‘23 i.

e. the total effect of the investments will be much larger. New Be.