Holmen will see earnings surprise if energy prices recover in Sweden

Summary

• Holmen is trading at a premium (P/E ~23) amid cyclical weakness in sawmill products and lower energy income.
• A more reasonable multiple on “normalized” earnings is likely ~10–15× over a longer cycle, suggesting possible overvaluation if 2025 earnings do not rebound. I assmue 12 PE multiple look three years ahead.
• Key signals for revaluation in upcoming reports include:
  1. Sawmill turnaround: Evidence of stronger order intake or pricing for sawn timber.
  2. Improving board/paper outlook: Higher volumes or stable/higher pricing for packaging board.
  3. Energy price recovery: Notably stronger electricity revenue in northern Sweden.

If these indicators begin to trend positively, Holmen’s earnings could surprise on the upside, justifying its premium multiple or even prompting further re-rating. If not, the market may eventually compress the valuation closer to a historical or peer-group average.

Catalysts

• Sawmill rebound: Any uptick in construction (if interest rates ease) can boost Trävaror prices and volumes.
• Packaging demand: Continued shift toward sustainable, fresh-fiber packaging could lift Kartong & Papper (Secular trend).
• Energy prices: A rise in northern Sweden’s electricity prices, plus completion of the Junsterforsen upgrade, would drive Energi segment earnings (unlikely).

Industry Tailwinds/Headwinds

• Tailwind – Sustainability: Ongoing decarbonization pushes demand for renewable materials (wood products, paperboard).
• Headwind – Economic Uncertainty: Sluggish European growth or high interest rates dampen demand, especially in construction and consumer goods.
• Headwind – Overcapacity: If competing mills expand capacity, it could pressure prices for paper and sawmill products.

Assumptions

• Mid-Single-Digit Growth: Modest annual revenue growth (3–5%) driven by forest harvests, packaging, and gradual sawmill recovery.
• Margin Normalization: Long-term EBIT margins in the high teens—contingent on stable raw material costs and improved demand.
• Stable Dividend Policy: Consistent with Holmen’s strong balance sheet and management’s track record of shareholder returns.

Risks

• Prolonged Downturn: Weak building sector or stagnant European economy could further suppress sawmill and packaging margins.
• Regulatory Shifts: Tighter forest management rules or changing energy policies in Sweden might erode profitability.
• Competitive Pressures: Excess capacity in paper/board markets could keep prices subdued.

Valuation

• Current P/E ~23: High relative to recent earnings decline; suggests a premium for Holmen’s large forest holdings and integrated model.
• Reasonable P/E Range: Under a “normal” cycle, ~10–15× forward earnings could be more appropriate if profitability stabilizes or improves. Although the business is stable there is no pricing power and should be tradeded similar to a bond.
• Watch for EPS Rebound: If near-term earnings recover, that forward P/E multiple will look less elevated.