Global And North American Sustainability Will Boost Fiber Packaging

Key Takeaways

• Rapid adoption of high-value, eco-friendly packaging and disciplined cost management position Billerud for substantial growth, margin expansion, and outsized shareholder returns.
  
• Unique advantages in innovation, U.S. market presence, and strategic pulp capacity enable Billerud to capitalize on industry shifts toward fiber-based solutions and trade policy changes.
  
• Intensifying regional competition, market shifts, and operational challenges threaten Billerud's revenue stability, margin growth, and long-term strategic execution.

Catalysts

Provides paper and packaging materials worldwide.

• Analyst consensus anticipates a positive North American evolution due to capital projects and local production, but this may significantly understate the upside; the rapidly increasing customer trials and exceptionally positive feedback indicate an accelerated shift to high-value packaging grades, which could result in a step-change in both revenue and sustainable EBITDA margin expansion as Billerud becomes a leading supplier to top U.S. brands.
  
• Analysts broadly expect EBITDA and EBIT improvements from the Way Forward strategy, but are underestimating the snowball effect of Billerud's rigorous fixed cost discipline, efficiency improvements, and strong cash generation; with cash conversion reaching over 130% in Q2 and leverage below 1 times EBITDA, there is substantial untapped room for share buybacks or high-return reinvestment, dramatically enhancing future earnings per share and the company's valuation multiple.
  
• Billerud is uniquely positioned to seize structural growth from the accelerating global shift toward plastic substitution in packaging, especially as major FMCG companies and e-commerce platforms increase commitments to fiber-based, recyclable solutions, supporting sustained volume and revenue growth far beyond near-term cyclical headwinds.
  
• The company's advanced innovation pipeline, including functional barrier papers and renewable packaging technologies, is set to deliver outsize pricing power and margin uplift as regulation and demand increasingly favor high-performance, eco-friendly materials, with early customer adoption already validating Billerud's R&D leadership.
  
• Billerud's North American pulp surplus and strategic capacity will allow it to disproportionately benefit from shifts in U.S. trade policy and permanent tariffs on paper and pulp imports, solidifying a long-term cost advantage that not only supports net margin expansion but also enhances pricing power in a tightening supply environment.

Billerud Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Billerud compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Billerud's revenue will grow by 1.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.2% today to 5.4% in 3 years time.
• The bullish analysts expect earnings to reach SEK 2.5 billion (and earnings per share of SEK 10.14) by about September 2028, up from SEK 1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from 11.7x today. This future PE is greater than the current PE for the GB Packaging industry at 12.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.17%, as per the Simply Wall St company report.

Billerud Future Earnings Per Share Growth

Risks

• Prolonged weak demand and structural overcapacity in the European market, especially within board and containerboard, create ongoing pricing pressure and volume declines, which can depress segment revenue and margins for an extended period.
  
• Heightened competition from both local players in Asia and global producers is eroding Billerud's liquid packaging market share in historically strong regions like China, increasing the risk of further lost volumes and declining sales.
  
• The accelerating shift toward digitalization and e-commerce, combined with substitution by alternative packaging materials (including bioplastics and reusable systems), poses a secular risk of diminishing demand for Billerud's paper-based products, threatening longer-term sales growth.
  
• Slow progress, execution risks, or delays in integrating and ramping up North American operations, particularly with the Evolution capital program deferrals and investment delays, could dilute group earnings and negatively impact return on invested capital in the coming years.
  
• Billerud's heavy production footprint in the Nordic region leaves it exposed to cyclical fluctuations in energy input prices, volatile pulpwood costs, and regional labor actions, contributing to structural earnings volatility and operational risk.

Valuation

• The assumed bullish price target for Billerud is SEK119.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Billerud's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK119.0, and the most bearish reporting a price target of just SEK84.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK46.2 billion, earnings will come to SEK2.5 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 5.2%.
• Given the current share price of SEK86.4, the bullish analyst price target of SEK119.0 is 27.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.