2
Jun

Company Results Update Q1, 2023

2023 Blog_Pic Timber Company Research – 1Q 2023 Update

1. Results Overview

The first quarter results published by companies in the sector highlighted

  • the normalisation (on the downside) of timber prices on a Year-on-Year basis;
  • resilience in the packaging sector;
  • a challenging construction market.

 

While the economic situation is characterised by significant headwinds, it should be noted that the market had already priced such challenges to a certain extent, as reflected by the declines in the prices of timber stocks during 2022. The Timber Finance Carbon Capture & Storage Index reached a bottom in November 2022 at -33% from its peak at the beginning of the year.

In the medium-term, headwinds are expected to persist, as long as we do not see a reversal of monetary policy tightening.

Download report as PDF: 1Q23_results_commentary

 2. Timber Construction

Companies with a focus on durable wood products (Primary and Secondary Wood Products as well as Timber REITs) reported large declines in revenues on Year-on-Year basis. The median decline in quarterly revenues was -29%, while at EBITDA and EBIT level the declines were, as is normal, larger at -76% and -94%, highlighting how the market changed.

The notable positive outlier was Stella Jones from Canada, covering specialised niches such as utility poles and railway tiles – while those segments were strong, the residential lumber segment was weak.

On a Quarter-on-Quarter basis, revenues were, on average, despite significant dispersion, flat. The largest top-line declines were posted by Timber REIT Rayonier who suffered from both lower timber prices as well as lower revenues from its real estate division. Rayonier also reduced its guidance for the full year and noted that they are shifting their harvesting plans in response to weaker markets, which highlights the optionality embedded in Timber REITs. Canadian wood products manufacturer and wholesale building materials distributor Goodfellow reported the sharpest decline QoQ with -29% in its topline, noting an uncertain outlook and weakening purchasing power. A positive outlier was Trex, the US manufacturer of wood-composite products, which reported a QoQ increase in revenues of +24%, but this comes from a low base and was down -30% YoY. Builders FirstSource highlighted a weak single-family housing market while multi-family and repair & remodel held up well. Despite sales down -32% YoY and adjusted EBITDA down -37%, Builders FirstSource continued with its growth plans by completing three acquisitions

3. Paper & Packaging

The Paper and Packaging market was remarkably more resilient than the wood products segment. The median YoY change in revenues was +2%. The most positive outlier with respect to top-line were Billerud (+55%) while the most negative was Iberpapel (-15%). Billerud’s results are driven by the inclusion of their business acquisition in North America during 2022, but would have still been a positive +6% organic growth. Iberpapel’s results are actually mixed, with YoY revenues increases in their paper segment thanks to strong pricing, and strong decreases in their power generation segment due to down-time. QoQ, results were also relatively flat.

4. Construction

Construction companies reported top-line results that were on average up YoY. Norwegian construction company Veidekke noted a strong order intake but also acknowledged challenging market conditions, especially in Sweden, where the residential real estate market is very weak. The weakness of the Swedish real estate market is not new and has been dragging along for several months now. Q1 is seasonally a weak quarter, and this applies to other companies as well, such as French developer Nexity, so QoQ figures, which are broadly negative, are less meaningful. That said, Nexity’s management highlighted a slowdown in activity that is expected to continue into the following quarter; while revenues were flat YoY, and the backlog equivalent to ca. 19 months of revenues provides support, reservations declined -25% in value.

5. Disclosures and Conflicts of Interest

Some or all the companies mentioned in this report may be included in the Timber Finance Forest-Based Construction Basket tracker and are part of the Timber Finance Carbon Capture & Storage Index.

Please note that this research is prepared for informational purposes and targeted to institutional investors in Switzerland. They do not represent investment advice and do not take into consideration the individual requirements, risk tolerance and goals of an investor. Recipients who are not Swiss institutional investors should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

The information presented in this report is obtained from several different public sources that we consider to be reliable. Nevertheless, we cannot guarantee the accuracy of the presented information. The information used may change quickly and we are not committed or obliged to modify the reports base on new information. The opinions and views expressed in this report reflect those of the author at the point in time of its compilation and may vary at any time. Valuation methods like DCF and any other analysis or expert judgement do not provide any guarantee that the target price or fair value will be reached, for example because of unforeseen changes in financial or economic conditions.

For more details and questions, please do not hesitate to get in touch with us at info@timberfinance.ch or:

Timber Finance

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CH-8005 Zürich

Tel. 044 991 13 44

General disclaimer © 2023 Timber Finance Management AG (“Timber Finance”). All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of Timber Finance. Timber Finance Management AG makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and Timber Finance Management AG and its third-party licensors shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. All data and information is provided by Timber Finance “as is”. Past performance is not an indication or guarantee of future results. This document does not constitute an offer of any services. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments offered by third parties that are based on that index.

Copyright © 2023 Timber Finance Initiative. All rights reserved.

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