Mondi Group has faced a couple of very unfortunate setbacks recently:
Mondi’s Stambolijski mill in Bulgaria is being closed following significant damage caused by a fire
A pulp tank exploded at Mondi’s Kuopio board mill on Monday, causing parts of the mill’s roof to collapse. A major €125 million expansion investment was recently completed at the Kuopio mill.
” UPM and Stora Enso will have to wait a long time before earnings start to recover properly”
This same thing is coming from every direction now:
"STORA ENSO OYJ PRESS RELEASE 8 November 2024 at 10:00 EET
Stora Enso has signed an agreement to sell the Sunila mill site in Kotka to AALTO Development Oy. AALTO Development Oy is a private Finnish real estate development company focusing on high-quality architecture, urban planning, zoning development projects, and repurposing.
Stora Enso will remain in Sunila as a tenant of AALTO Development Oy. The transaction has no impact on Stora Enso’s current Lignode battery material pilot plant operations or the feasibility study for the demonstration plant of CarbonScape, which is partly owned by the company.
The parties have agreed not to disclose the purchase price. The transaction is expected to be completed during the fourth quarter of 2024.
“We are pleased to have found a committed new owner for Sunila who has a strong vision for the further development of the area and a deep appreciation for Sunila’s unique Alvar Aalto architectural heritage. Furthermore, cooperation with a reliable partner is important to us as our Lignode pilot plant operations continue at Sunila,” says Tuomas Hallenberg, Stora Enso’s Country Manager Finland and Head of the Forest Division.
Pulp production at the Sunila mill ended in 2023. Since then, Stora Enso has sought to find a new owner for the Sunila mill site whose goal is to bring new, profitable, and employment-generating business to the area, utilizing the site’s favorable infrastructure and location. AALTO Development Oy plans to transform the area into a hub for sustainable energy technology and make significant investments in Gen-H Oy’s hydrogen-based solution."
Times are tough
We are on the brink of a trade war. In line with campaign promises, 10-20% tariffs are expected to hit forest industry products as well. The Swedish Chamber of Commerce recently stated that forestry companies would be among those hit the hardest.
Scarcely 10% of Finnish forest industry exports have gone to the USA, but our companies also have exports from their foreign facilities to the US and intentions to grow their US market share.
In itself, exporting there will still be possible in the future, but what about the margins after the tariffs?
It is still difficult to get a fully comprehensive picture of the potential future impact on Finnish companies. Could @Antti_Viljakainen help with this? 
Thanks!
The core of the story:
Making a profit is difficult. Forecasts do not yet show relief for the trough in the forest industry or other industries, although a moderate recovery is on the horizon.
We are in a stagnant state; the outlook is weak all over the world.
This is also reflected in the fact that pulp exports to countries important to Finland, such as China, Germany, France, and Italy, have decreased this year.
UPM is dropped as the sector favorite and replaced by Stora Enso.
Jussi Halme has made a piece on forest companies.
The forest industry was still the pride of the Finnish economy in the early 2020s, but now the sector is struggling with major challenges. High wood prices, weakened demand, and international pressures have dragged down results, although some glimmers of hope have been seen. UPM, Stora Enso and Metsä Board are each struggling with their own strengths, but is the decline stopping or will the difficulties continue?
In this video, we go through the current state of the forest industry and its future opportunities. We delve into the Q3 results of the three major players, evaluate the situation of their stocks, and consider how the Finnish forest could once again be a source of growth.
I took a broader look at the comparison of our domestic forest companies, relying on Inderes’ forecasts for this and next year.
Brief summaries:
Currently, Stora Enso appears clearly the most expensive, with Metsä Board and UPM priced more affordably. Both Stora and Metsä have become too locked into cartonboard production, which is currently struggling in the recession. UPM, being more diversified, is doing better, although its situation isn’t exactly the best right now either.
Both Stora and Metsä Board have recently invested heavily in Finland, and we have been able to closely follow the startup of these investments. At Metsä Fibre’s mill in Kemi, there have been really significant startup challenges (an explosion), and apparently, there is currently a production stoppage of about a month, though nothing official has been communicated about it. I heard about this indirectly through a timber supplier; the mill reportedly won’t accept timber for a month.
At Stora, the ramp-up of the cartonboard machine from the first investment phase is still ongoing, and a second new line will be completed soon. These won’t reach full production for a long time, so commissioning will have to be carried out during an already weak market. Stora succeeded better in at least the first phase of the investment, avoiding major accidents. The worst problems were frozen pipes, which were thawed for weeks.
The problem with Metsä Board and Stora Enso now is that their full earnings potential will have to be awaited longer due to recent investments, and the ramp-up takes time. Of course, UPM also recently invested in Uruguay, and apparently, things got off to a good start there. Another problem is this focus on consumer packaging boards: if the market isn’t strong, prices are low, and there isn’t as much room to maneuver as UPM has.
Production will be moved to Poland and Finland.
Addendum: here’s a more recent story about the Leuna plant, also from Germany. Let’s see when Leuna can achieve profitable production.
My target price for that particular stock is now only ten euros away. And I believe that even then, there’s no rush to buy.
I posted a message a couple of years ago, when everything looked good, that we would come down. Back then, energy was the last thing that supported it, along with old haikus (cardboard boxes). The entire sector.
Probably, even the management believed that we had achieved this good result, and all future-oriented innovation, which could have been done sustainably and more profitably than before, was left undone.
That would be significant. P/B would be around 0.75, which would be one of the strongest balance sheet-based discounts in two decades.
There has been no rush to buy this. If I can get it close to the book value, I might make purchases. ROE can realistically be expected to remain around ten, which would leave a slight margin of safety for our purchases.
Have you been fired from UPM, or what’s with this continuous pushing of the target price you’ve been doing month after month? A broken record sings 
UPM’s comparable ROE has otherwise materialized similarly over the years
2024 Q1-Q3 5.5%
2023 6.2%
2022 14.0%
2021 11.7%
2020 7.5%
2019 11.2%
2018 12.9%
2017 11.9%
2016 10.9%
2015 12.1%
2014 8.3%
2013 6.4%
2012 4.2%
2011 6.7%
2010 7.5%
It’s interesting to note that the product portfolio hasn’t changed all that much over the years. A little over ten years ago, pulp brought a significant portion of the results, energy was included, and paper (not specified in more detail by segment) was a significant part of the group. Raflatac, of course, cannot be forgotten.
It’s certainly possible that with the economy struggling, ROE could hover below ten for a while. However, most of the sales come from Europe, and the weakness of the Eurozone will surely be visible, as has been updated here in various threads. If the situation continues, I wouldn’t be surprised if the valuation level were to drop further from the current one.
Forest Industry Podcast
Discussing: Director Ville Henttonen from Fastmarkets and Chief Analyst Antti Viljakainen from Inderes. Reporter: Mikko Jylhä.
Published
Thu 28.11.2024
Billerud held a CMD yesterday. The presentations can be found here. Based on my quick review, Billerud didn’t offer any remarkably new or surprising insights, but the package contains a few quite interesting slides from the perspective of Finnish companies as well. Times are tough in the neighboring country too, even though Billerud gets to enjoy ‘vitamin D’ in the form of a cheap krona.
Here is an article from Salkunrakentaja about Stora Enso, which quotes, among others, United Bankers’ portfolio manager Teemu Perälä.
As I recall, the old investment advice for portfolio managers is to buy cyclicals when the P/E ratio is at its peak – I believe we are at that point now,” the portfolio manager states.
In addition, a weakening euro helps forest companies’ exports.