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Q3 Paper EBIT of ~PLN 16m vs. our PLN 5mArctic Paper's Q3 report was a positive surprise, with reported Paper EBIT of ~PLN 16m, compared to our estimate of ~PLN 5m. The beat was driven by higher sales, as Paper sales were PLN 576m vs. our PLN 534m. Despite the soft market balance, the paper deliveries and realised price were higher than our estimates, which caused sales to come in above. Regarding the challenging market conditions, we expect continued pressure on prices and softer demand (also seasonal weak volumes in December) in Q4. We estimate clean Q4 Paper EBIT of ~PLN 10m. We expect reported Paper EBIT of ~PLN 50m, due to ~PLN 40m in energy refunds received in Q4e. Regarding Pulp EBIT, we see early signs of a better pulp market, but Q4 will be affected by maintenance at Vallvik, which has an estimated impact on income of ~SEK 70-80m. We forecast Q4 Pulp EBIT of ~PLN -46m, which translates into clean group EBIT of ~PLN -37m (but reported likely ~PLN 3m). Challenging marketsPulpwood prices are dropping 10-15% across Scandinavia (Baltics -30%) as high inventories and low demand pressure the market. This is the first decline after a 100% rise over the last three years. The pulp market has its short-term issues, but hardwood prices are below the marginal producers' cash cost (unsustainable), and Suzano has announced +12% hikes. Paper markets are helped by 17% supply cuts in '24-'25, but slow demand leaves utilisation at only 75-80% in '25e. We need 3.5mt in more cuts (16%) to reach the historical average of ~89%. Fair value range of SEK 17-60The company is trading at an EV/CE multiple of ~0.5x, which is ~35% below its historical average. We have applied three valuation methodologies and arrive at a fair value range of SEK 17-60. |