Sappi's share price rose as much as 10%, closing on its biggest one-day gain since February after the company said it expected earnings for the fourth quarter would be higher than those of the unprecedented levels achieved in the third.
This was a turnaround from the cautionary guidance it gave in early August when it warned it was “anticipating another strong performance in the fourth quarter, with Ebitda below the record levels achieved in the third quarter” owing to rising energy costs in Europe.
Sappi’s shares tumbled 4% on that day despite the dissolving pulp and packaging company reporting earnings before interest, taxation, depreciation and amortisation (Ebitda) had risen to a record $371m from $145m previously, shored up by pricing momentum it was able to capitalise on amid a tight global environment.
In a fresh update to shareholders on Monday, Sappi said it expected Ebitda excluding special items for the fourth quarter to end-September to exceed those of the third quarter.
The group said the growth was primarily owing to stronger market conditions in the three months.
“European energy prices, principally gas, were lower than anticipated,” Sappi added. In its European operations, which account for 45% of group sales, Sappi has a high reliance on gas at its plants.
The 86-year-old Johannesburg-based company, whose share has climbed more than 23% over the past year has a market capitalisation of R28.5bn.
“It’s encouraging that Sappi upgraded their fourth-quarter guidance today — this is more in line with our expectations now,” Sean Ungerer, an analyst at Chronux Research, told Business Day.
“We think this is on the back of a weaker rand and lower-than-expected gas costs in Europe.”
The group recently concluded an agreement with investment firm Aurelius to take ownership of the Maastricht mill in the Netherlands, the Stockstadt mill in Germany, and the Kirkniemi mill in Finland, for an enterprise value of about €272m to focus on the lucrative packaging and pulp markets.
Among the major shareholders of the JSE-listed group are the Public Investment Corporation, Allan Gray, Prudential Investment Managers, Ninety One, Old Mutual and Alexforbes Investments.
Sappi’s full financial statements for the fourth quarter and financial year-end are expected on November 10.
Sappi’s share price closed up 7.96% at R49.66, its biggest one-day gain since February 9.
Update: October 10 2022
This story has been updated with additional information.
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