SAPPI was one of the standout performers on the JSE this week after the pulp and paper producer delivered a solid quarterly showing.
Investors pushed up the stock as much as 17% — its biggest gain in seven years — after profit rose 79% to US$100m in the three months to March.
Net debt, which has helped keep the lid on the share price for some time, according to some analysts, dropped to $1.652bn from $1.916bn.
The debt burden was accumulated in 2008 during its international expansion, which coincided with the onset of the global financial crisis.
With manufacturing bases in Europe, North America and Southern Africa, the company exports its products to 161 countries. Over the years, Sappi has repositioned its portfolio, which traditionally was focused on producing a coated paper used in glossy magazines.
The switch was its response to disruptive technology such as Apple’s iPad and e-readers like Kindle, which have had a marked effect on the demand for paper products.
Sappi is now the world’s largest producer of dissolving wood pulp, primarily supplied to the textile industry.
“Our strategy to reposition Sappi as a profitable and cash-generative diversified wood fibre group remains well on track,” says CE Steve Binnie.
The wood fibre, or dissolving wood pulp, is exported mainly to Asia — a boon for the group as prices are quoted in US dollars.
Over time, Sappi reckons its more profitable dissolving wood pulp businesses will make up for the shrinking margins in its paper business. Its operating performance in the quarter continued to be strong despite the $10m impact of planned maintenance closures across the group when compared to the equivalent quarter last year.
The market has reacted favourably to Sappi’s growth outlook, pushing its share price up from R22 in 2011 to R67.70 currently.