Stora Enso as an investment

Stocks
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Surprisingly little discussion about Stora Enso. I think there’s a quite interesting situation at hand, and a Capital Markets Day is also looming.

Considering forest assets worth approximately 9 billion, likely to be listed soon (over 11 euros per share), and a net debt of 3.9 billion euros, at the current market capitalization of 7.1 billion euros, the value of Stora Enso’s businesses remains under two billion euros. The book value of these three strong business areas (Renewable Packaging, Biomaterials & Wood Products) is 7.5 billion euros. Just saying

To the speculations regarding the listing of forest assets, it must be added that it is also very possible that the forests will be listed in Sweden and the long-term playbook is to consolidate forest ownership. Stora’s second largest owner is Wallenberg’s FAM AB, which also wholly owns a company called Koppafors Skogar, which owns 228,000 hectares of forest in Sweden, and they have strongly introduced renewable wind energy into the forests. Also, the future rules of the natural value markets are currently being clarified, and the Commission has already issued a communication on the roadmap – so it is likely that natural value trading in the EU area will create new earning opportunities for forest owners.

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Investments consume a large portion of Stora Enso’s cash flows. I calculated that the 9-year average for free cash flow was 502 million.

Stora declares forest assets as the core of its business. Is forest a good investment, especially considering the future? I see a huge risk that in the future, in order to achieve carbon sink and emission reduction targets, forest felling may have to be restricted. Although wood is more rapidly renewable than fossil fuels, sawlogs still take 60 years to grow and strengthen enough to be felled. A wood-based disposable coffee cup is better than one made of plastic, but here too, the life cycle impact should be calculated to determine if it is sustainable.

Stora mentions in its annual report that new revenue streams are being developed for forests, such as wind farm platforms and hunting grounds. A minority (36%) of Stora’s wood consumption comes from its own forests, and wood is purchased from external parties. The company states that this way, forest growth is greater than felling, but is Stora’s operation as a whole - including purchases - reducing or increasing the wood mass of forests?

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I find it peculiar to discuss the company’s forest assets as a non-strategic asset that can simply be dumped as a whole and buy wood from the market. This is in a situation where competition for forest resources has intensified and the company has expanded its wood procurement areas to respond to this.

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Spotted in a coffee break discussion yesterday. Stora is starting co-determination negotiations (YT-neuvottelut) and people are already laid off.
A statement has also been issued:

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Isn’t that just moving eggs from one basket to another without increasing the number of eggs?

I initially imagined the forests would be sold. Now they are being spun off into their own company, removing assets from Enso’s balance sheet. Shares will be distributed to Enso’s owners, so they will receive the lost balance sheet value as shares in the new company. Where is the benefit in this, unless the forests are then blatantly undervalued on Enso’s balance sheet.

Edit:
Something like Enso’s share price €10 after listing the forests -€5, new company shares +€5

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And so the long-speculated news arrived: the forest asset business will be separated. This long-awaited news significantly clarifies the group’s structure, and it now demonstrates that the P/B ratio indeed has practical relevance when Stora Enso is considered as an investment.

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Was there any mention yet of the ratio in which shares will be distributed to the owners of the new company? I tried to look for it, but haven’t come across it yet.

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It’s curious how private entities always manage to sell/list their sawmills at the peak of the cycle. As has been seen in Finland in recent years. Stora would now be selling its sawmills and construction businesses at the bottom of the cycle…

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Stora’s market value is now around 8 billion, and the valuation of the forests was, based on the summer transaction price, 5.8 billion, so the value of the company’s actual business would be 2.2 billion. So the value is quite negligible. My expectation is that after the listing, when both companies are combined, the value should be 10-11 billion or even more. So the idea is that value is released when forest ownership is made visible.

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How often is valuation determined in such situations? I’m wondering if the valuation of forests was done at last summer’s peak prices, from which it has now declined by at least 10% according to Billerud’s Q3 report. And, as I understand it, the timber price would need to decrease further for profitable business to be possible?

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To my understanding, the details have not yet been disclosed, but generally, partial demergers are done on a one-to-one basis.

It doesn’t really need to be determined; the market (i.e., buyers and sellers) handles that automatically once the shares of the new company start trading. I also emphasize that one should not rely on the assumption that the view of buyers and sellers in H1’27 will be exactly the same as the fair value recorded in Stora Enso’s balance sheet.

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Let’s clarify a bit:

In Sweden, Stora owns 1.2 million hectares of forest. The annual growth per hectare is approximately 5 m3. If we consider the price to be 60€ /m3, we arrive at the conclusion that Stora’s forests / the new company’s forests produce about 6 million cubic meters of wood per year, which is approximately 360,000 million €. The value of the forests has been hinted at 4.8 billion, from which an annual return of about 8% could be obtained. 60€ is not necessarily a long-term sustainable price; it’s perhaps more likely that we will see lower prices in the future.

Enso has 800 million shares. This means each share would receive a forest share worth approximately 6 euros. The range in which the correct price will be formed is a market decision. If the price ends up lower, the return rises above 8%, which doesn’t sound too bad in itself. What then remains as Enso’s actual profit? Enso has not been able to generate as good a return on capital as the forests that are now leaving the company.

The numbers used are indicative.

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Here are Viljakainen’s comments regarding Stora Enso’s Friday announcement. :slight_smile:

Stora Enso announced on Friday that it has completed the strategic review of its Swedish forest assets and intends to proceed with a plan to separate the assets into a new listed company. The news was expected and supports our view of Stora Enso’s stock, which relies on unlocking the hidden value in the company’s balance sheet. The negative aspect of Friday’s news was the timeline, as the demerger is only expected to take place in H1’27.

Then there’s also this comment from Antti. :slight_smile:

Stora Enso announced on Friday that it is initiating a strategic review concerning its sawmills and building solutions operations in Central Europe. The business under review is significant, with a turnover of approximately EUR 800-900 million. This business is outside Stora Enso’s core in the company’s strategy, which focuses on renewable packaging materials and aims to streamline its structure. Against this background, we believe the initiation of the review was not a surprise.

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The decision to list the forests is welcome, but the timeline for such a project is terribly long. This has already been planned for half a year, and now an additional year and a half is being allocated, making a total of two years to list existing assets, for which balance sheet values should already be available, which do not need to be sold to anyone (meaning no 12-month sales process), and the top management’s will is already clear – so, as I understand it, a very clear process. How can another 18 months be wasted on this? This is a waste of shareholder value; just when momentum, media coverage, and a boost to the stock price were gained, this certainly undermines faith in the company’s ability to innovate and generate added value for its owners. I would expect management to take responsibility and expedite this matter.

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I agree.

Perhaps they always make decisions slowly?

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What portion of the debts will be transferred to the segregated forest? Are interest rates rising in the coming years? This has great significance.

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It is not yet known and probably won’t be clear for a while. At the CMD, it was mentioned that both companies are aiming for an investment grade credit rating, which practically does not allow debt allocation to only one of the companies. Of course, in this type of extreme solution, tax factors could also become an obstacle.

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I suspect that the already observed decrease in timber prices and the predicted future rise in interest rates will have an impact on how this situation still turns out. Should have acted a year or two ago.

It will probably happen as usual: the price of wood rises sharply and eventually falls to its long-term average. Good and bad for Stora.

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As a small forest owner, I looked into what the price per hectare of Stora Enso’s Swedish forests would be if bought through the stock exchange. I roughly divided 1.2 million hectares by the share count of 788 million shares, meaning 650 shares would correspond to one hectare of forest. At the current share price, the cost would be about €6,730. For comparison, I did the same calculation for SCA, which owns a staggering 2.6 million hectares of forest. 702 SCA shares would correspond to one hectare of forest, which at the current price would be 32,508 SEK or €3,023.

Although you get a forest hectare for less by buying SCA shares, the location of the forests must be taken into account. Stora’s forests are located in Sweden’s most favorable region for forestry, north of Karlstad and south of Sundsvall, with the largest concentration in Värmland.
SCA’s forests, on the other hand, are relatively far north: the largest concentration is in Jämtland, but the northernmost plots in Lapland are at the same latitude as Kolari in Finland. https://tradevenue.se/@aktiepappa/var-ager-de-svenska-skogsbolagen-sin-skog-1613

Compared to forest prices in Finland, both of these are relatively inexpensive, considering that the industrial business and wind farms are included on top.

The taxation side is what makes me wonder, as I am not familiar with Swedish forest taxation at all. Some kind of tax is likely paid to Sweden on timber sales. Let’s imagine then that the profit was distributed as dividends to the owners of a new forest company, in which case capital gains tax would still have to be paid on the dividends. So, in the worst-case scenario, double taxation of capital income if everything were paid out as dividends.

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Here are Stora’s results as well, since they hadn’t been linked yet:

Q4/2025 (compared to Q4/2024)

• Sales decreased by 3% to EUR 2,254 (2,322) million, mainly due to lower board and pulp prices. This was partially offset by the impact of the Junnikkala acquisition and the ramp-up of the consumer board line at the Oulu mill.

• Adjusted EBIT decreased by 17% to EUR 100 (121) million. This was driven by lower pulp prices and the start-up of the new line in Oulu, which had a negative impact of EUR 31 million for the quarter. The adjusted EBIT margin decreased to 4.5% (5.2%).

• IFRS operating profit was EUR 476 (-279) million. The result includes EUR -90 (-768) million in items affecting comparability and EUR 466 (368) million in fair value changes and non-operational items. This was mainly due to an increase in the fair value of biological assets.

• Earnings per share was EUR 0.46 (-0.43) and earnings per share excluding fair value changes was EUR -0.03 (-0.81).

• The fair value of forest assets was EUR 8.5 (8.9) billion, which corresponds to EUR 10.75 per share. The change reflects the sale of a 12.4% stake in forest assets in Sweden.

• Cash flow from operations was EUR 337 (325) million. It was positively impacted by an improvement in working capital.

• The net debt to adjusted EBITDA ratio (last 12 months) improved to 2.8 (3.0).

• Adjusted return on capital employed (ROCE, last 12 months) excluding the Forest segment was 2.7% (3.6%).

Year 2025 (compared to year 2024)

• Sales were EUR 9,326 (9,049) million.

• Adjusted EBIT was EUR 528 (598) million.

• IFRS operating profit was EUR 942 (93) million.

• Earnings per share was EUR 0.88 (-0.17) and earnings per share excluding fair value changes was EUR 0.41 (-0.56).

• Cash flow from operations was EUR 897 (1,187) million. Cash flow after investing activities was EUR 122 (74) million.

Dividend proposal
The Board’s dividend proposal for the Annual General Meeting to be held on March 24, 2026, is EUR 0.25 (0.25) per share. The Board proposes that the dividend be paid in two installments, in the second and final quarters of 2026.

And (quick) comments immediately following:

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