Arctic Paper: Still challenging - ABG

* Q3e Paper EBIT of ~PLN 5m* Challenging markets* Fair value range of SEK 17-60Q3e Paper EBIT of ~PLN 5mWe expect Q3e Paper EBIT of ~PLN 5m, up from PLN -16m in Q2'25. We are of the understanding that Q2 was affected by malfunctions and unplanned shutdowns. In our q-o-q setup, we add back the negative effects of these events, but this is partly offset by lower prices and continued soft demand. Hence, we arrive at ~PLN 5m; this is down from ~PLN 12m in Q1'25, which can be viewed as a more "normal" quarter given the soft market balance. Note that Rottneros reported pulp EBIT of SEK -58m (~PLN -22m) last week, which was in line with our expectations. Our '25e estimates are up due to the reversal of the negative Q2 paper effects, meaning our Paper EBIT estimates are lifted as well. We are still somewhat cautious on our Rottneros estimates, but looking into '26, lower pulpwood costs should help. However, given Rottneros' position on the cost curve (far right) and the uncertainty regarding prices and demand, we wait to factor the full effect of lower input costs into our estimates.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.