Cartonboard demand vs. GDP
Revisions and performance
We have updated our supply/demand models and spot price estimates to better reflect a negative outlook for 2020, cutting 2020E-21E EBITDA by 28% and 12% for the sector on average. In terms of earnings trajectory, we expect 2020E EBITDA to decline by 39% year over year and recover by 38% in 2021E (still 15% below 2019). As a reference point, we are modelling a slightly harsher scenario for 2020E versus 2008-09, which is also consistent with UBS economists' current view on the global economy. We cut 2020E-21E DPS by 28% and capex by 10% and 20%. According to our calculations, the market is pricing in an 8% average cut to current consensus 2021E EBITDA assuming normalised multiples. Compared to our new estimates, we regard this as relatively fair overall. We acknowledge that the COVID-19 situation remains fluid, creating uncertainty to estimates and the timing of the recovery.
Balance sheets, liquidity and dividends
The companies in the sector are well funded and we do not foresee any liquidity issues. FY 2019 DPS might well be lost in many cases, but we note that compared to 2008, EBITDA margins were 6 p.p. higher at 17% in 2019 and net debt/EBITDA 1.9 p.p. lower at 1.5x.
Upcoming signposts for further calibration
As delivery statistics lag, we focus on demand outlook comments in Q1 reports (start 21 April). We also track weekly FOEX spot price movement as well as RISI's publication for Germany spot prices (14 May and 11 June) to further calibrate our estimates.