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SCA – Sell-side Rebuttal

February 1, 2024 – Viceroy Research will debate Christian Kopfer of Handelsbanken this Friday, February 2, 2024, on DITV. This serves as an opportunity to address aspects of our analysis that were disregarded in his last appearance.

Viceroy offers this summary of our work. Breaking out the valuation methodology of Viceroy, SCA, sell-side analysts, and requisite inputs for full transparency and so viewers can follow along.

Viceroy has made a business of repudiating the work of complacent analysts for more than eight years. When it comes to scrutinizing our analysis and challenging our conclusions we welcome facts – rather than unfounded appeals to management & audit authority, or logical fallacies, as has been the case to date.

Viceroy can condense our economic argument to 4 main points, and these do not consider the impact of biological risk facing SCA’s forest assets.

  1. The yield of forestry assets is ~1%. SCA attributes a SEK 101b valuation to its forestry assets which, on a standalone basis, generates ‘cash EBITDA’ – as a proxy for FCF – of SEK 1.3b.
  2. Log price inflation is flat. Historical sawlog prices in Northern Sweden have grown 1.18%pa since 1995 which includes two outliers of more than 10% [YoY] in 2022 and 2023
  3. The underlying value of the forest assets is outpaced. SCA’s Forest assets present a ROIC of 3.6%-3.8%5 (ex. sawlog & pulpwood inflation) against a sell-side WACC of 6.1% (on the low end, Handelsbanken).
  4. The harvesting yields do not add up

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