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SCAB – Fudging Your Lumbers

Author: Published on: Published in: Svenska Cellulosa STO:SCA-B

January 25, 2024 – Viceroy are short Svenska Cellulosa AB (STO:SCA-B)(“SCA”).

SCA has massively inflated its forest assets on paper. Its valuation methodology has relied on short-term price fluctuations, interest rate fluctuations, and mark-to-market assumptions for numerous unrealistic inputs to massively inflate SCA’s forestry assets. In this report we highlight the following concerns”

  • We believe SCA has vastly overstated the volume of its forest assets, which is the primary biological volume input against mark-to-market sales data.
  • SCA’s DCF valuation is extremely sensitive to its discount rate because its discount rate is extremely low at 2.65%, even in 2022 when the Swedish policy rate ended at 2.5%.
  • SCA’s mark-to-market approach uses market value transaction data from sales of, mostly, non-productive land (i.e. hobby, environmentalism, gaming).
  • SCA appears to have aggressively overharvested inventory and has brought forward expected forestry volume yields, possibly to justify aggressive valuations on mega long-term asset cycles. SCA has been reprimanded for overharvesting and early-harvesting violations on various occasions.
  • SCA and other Swedish operators face several environmental threats with new research showing widespread damage to younger forests throughout the country.

Viceroy’s investigation is ongoing, and we anticipate producing further SCA reports, as well as a review of SCA’s 2023 results, in the near term.

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