According to FUNDER website data,
129 mutual funds hold NIS 39.15 million in Hadera Paper shares
Funds that hold significant holdings in the stock – for the full list of holdings
The following is a change in the holdings of the mutual funds in the Hadera Paper share according to FUNDER-MVF data.
Paper Roll Market “Raises its Head” – In the last two years, the paper roll market for cardboard has experienced a severe crisis as a result of the trade war between China and the United States, which led to a $ 70 billion drop in transit between the two countries and a sharp drop in demand for paper rolls.
A price drop of a similar intensity has not been seen in the cardboard paper rolls market since the financial crisis about a decade ago. In September this year, there was a change in trend, and the prices of rolls of paper rose by about $ 50 per ton. The price continued to climb in November, December by an additional $ 20, and forecasts are for a further increase in early 2021. The rise in prices is supported by an increase in demand with year-end deals in online sales and a shift in consumption from services to products following the Corona crisis.
In addition, cellulose prices also began to rise in December, leading to a further rise in the prices of paper rolls for cardboard. In our opinion, the price increases will be reflected in the results of the first quarter of 2021.
Amnir- Despite the erosion in world waste prices, Amnir managed to increase its operating profit rate in the first nine months of 2020 compared to the same period last year by reducing operating costs.
Efficiency- Over the past year, the company has become more operationally efficient and has increased its output on machine 8 (which for the first time exceeded the production of 220,000 tons). In addition, the company accelerated the merger of graffiti with Galil On, thereby reducing costs. Next year (and a one-year postponement due to the corona crisis), the company will begin converting the stationery machine to a machine that will produce rolls of paper for cardboard (an additional 140,000 tons). The investment is estimated at NIS 200 million. The company will be able to produce both white paper for the stationery sector and brown paper for the roll of paperboard for cardboard, according to need and maximum benefit. As part of the valuation, we assumed that the stationery sector would stop losing money. We have assumed significant profitability in the transition to the production of paper rolls.
The Bottom Line: In light of the budding trend of changing the prices of paper rolls per carton and the prices of cellulose, together with the company’s streamlining measures and plans for further streamlining (conversion of the machine), we leave our recommendation for a purchase.
general
Hadera Paper is a packaging, paper and recycling products company. The company deals directly and through subsidiaries in three main operating segments
• Sale of cardboard and paper waste collection, processing and recycling services.
• Production and sale of recycled paper rolls for cardboard (brown paper).
• Manufacture and sale of corrugated and paperboard packaging.
In addition, the group is engaged in the production and marketing of writing and printing papers (white paper) and in marketing the needs of business offices.
The following are the company’s areas of activity:
Collection and recycling services – this area of activity includes the cardboard and paper waste collection system performed by Amnir and its subcontractors and processing for recycling and use as a raw material for the production of paper rolls for cardboard. The cardboard waste is collected from various sources throughout the country by Amnir and processed in its factories in Hadera and Modi’in. Cardboard waste is a major raw material in the production processes of paper rolls for cardboard. Amnir also collects white paper and newsprint waste and collects and processes plastic waste.
Rolls of paper for cardboard – The group’s activity in this area of activity includes the production and sale of rolls of paper for cardboard produced from 100% cardboard and newspaper waste collected mainly by Amnir. Cardboard paper rolls are a general name for all types of paper from which “corrugated cardboard boards” are made (outer wall, paper wave and inner wall). The recycled paper rolls for cardboard are used as a raw material for the corrugated cardboard packaging industry (hereinafter: “the corrugators”). The group produces “floating” paper (the paper combined with corrugated cardboard boards, as a wave), “test liner” paper that forms the sides of the cardboard board and recycled paper types that are a substitute for rolls of cellulose-based “virgin” cardboard.
Packaging and carton products – The Group’s activity in this field of activity, carried out by Carmel, includes the production and sale of corrugated cardboard packaging, intended mainly for customers in the fields of industry, food, beverages and agriculture, and of “duplex” shelf packaging for consumer products in industry, agriculture, food, beverage and pharmaceuticals. Cosmetics and display stands (POS) Most of the cardboard packaging produced in Carmel is made from paper rolls to recycled cardboard produced by the paper mill.
Writing and printing papers – The Group’s activity in this area of activity includes the production and marketing of writing and printing papers as well as the marketing of imported papers, such as coated paper and other special papers not produced by it, as a complement to its product basket.
Marketing office needs – The group’s activity in this field is carried out by Graffiti, which markets office and paper needs products, mainly to the institutional and business market, which includes, among others, government institutions, banks, health funds and other large businesses. In addition, the company distributes exclusively to wholesalers and retailers products of leading international brands such as: -Uni, Caran D’ance, Tesa Max, Schneider, Artline, Ball
Packaging papers market
The packaging and cardboard products industry produces products for customers from the fields of industry, agriculture, food and beverage industries, cosmetics, pharmaceuticals and industry. The level of activity in the economy and the volume of exports have a significant effect on the demand for packaging and cardboard output. The market for packaging papers and cardboard products is different from the “white” paper market, writing and printing paper, and has the following characteristics:
• Quite rigid demand driven by population growth, GDP and standard of living
• The volume of production and sales has been steadily increasing over the years
• Significant barriers to entry in the form of a large capital investment.
Below are graphs depicting the global packaging market and the rate of use of recycled paper in the US.
The steady growth can be seen, with a fairly strong demand over the years and the ability to recover from economic crises. In addition, it can be seen that the rate of use of recycled papers is increasing over the years.
Demand for packaging and cardboard products is growing in line with gross domestic product. There is a high correlation of 76% in the US between the increase in GDP and sales of corrugated cardboard packaging as can be seen in the graph above, in addition to the rising price trend of packaging papers in the world and in the US market as can be seen from the graphs shown above:
In 2018, there was a significant increase in Israel and around the world in the price of the raw material from which the cardboard packaging is made (rolls of paper for cardboard), both the recycled and the virgin raw material. At the end of 2018, the prices of paper rolls per carton began to decline (details below).
Cardboard paper roll market
The market for paper rolls for cardboard is characterized by growing and stable demand over the years and high barriers to entry, due to the significant capital investment required to establish a plant for the production of paper rolls for cardboard. The demand for paper rolls for cardboard, which are a major raw material in the production of packaging products from corrugated cardboard, has been growing worldwide consistently over the years. The growth is mainly driven by a natural increase in the population and an improvement in the standard of living.
In recent years, the growth of directed trade has also accelerated growth (an increase of about 1% per year). The process of manufacturing corrugated cardboard packaging usually requires two types of paper rolls as a raw material. A “virgin” paper roll is made of cellulose and recycled paper rolls. Over the years there has been a marked market trend of using virgin cardboard paper at the recycled expense. Paper and the centrality of cellulose In the process of producing virgin paper, there is a high and long-standing correlation between the prices of cellulose and the selling prices of recycled virgin paper.
As a result of the increase in demand in recent years and the high barriers to entry, the world’s means of production are at a high level of utilization rate. For example, throughout 2018, the means of production in the American market stood at a level of 97%. In the last two years, the paper roll market for cardboard has experienced a severe crisis as a result of the trade war between China and the United States, which led to a decrease of about $ 70 billion in the transition between the two countries, and as a result, a sharp drop in demand for paper rolls.
A price drop of a similar intensity has not been seen in the cardboard paper rolls market since the financial crisis about a decade ago. In September this year, there was a change in trend, and the prices of rolls of paper rose by about $ 50 per ton. The price continued to climb in November, December by an additional $ 20, and forecasts are for a further increase in early 2021 as well.
The following is the production capacity of cellulose in the world, and the employment rate of the means of production in the United States:
The following is a global demand for cardboard rolls in recent years:
The main raw material for paper production is cellulose.
Of the existing cellulose types, two are major in paper production. Short fiber and long fiber.
In 2017, world cellulose prices began to rise significantly, a trend that continued, albeit more moderately, also in the first nine months of 2018. In the last quarter of 2018, prices began to decline. In September 2020, prices began to rise slightly.
Beyond recycled paper
In recent years, there has been a trend of customers in Israel and around the world using recycled paper rolls for recycled cardboard, at the expense of using cellulose-based virgin fiber rolls (imported into Israel), among other things, in light of the higher cost of virgin fibers compared to recycled fibers. The transition to recycled cardboard rolls has been made possible, among other things, in the face of technological developments in the field, which make it possible to produce recycled paper fibers with strength properties and additional qualities similar to those of virgin cellulose-based paper. Also, in recent years, awareness of environmental protection issues has increased, which helps increase the penetration rate of papers made from recycled fibers.
The following is a graph of the world turnover rate:
As can be seen from the graph above, there is a consistent upward trend in the rate of use of rolls of paper recycled into cardboard, at the expense of virgin papers. It should also be noted that the rate of use in European countries is higher and has crossed the 70% threshold on average.
Valuation Appendix
The valuation of Hadera Paper was performed using the cash flow discounting method.
To perform the assessment, we performed an operating forecast for each of the Company’s main operating segments. The operating cash flow expectation arising from all these activities was capitalized at a capital price of 8.0%, which in our estimation reflects the risk inherent in the Company’s operations. In addition, we assumed an infinite growth rate of 2.5%. From the operating value of these activities we deducted the Group’s net financial liabilities.
The following is a list of the assumptions made for the purpose of valuation:
Revenue – We assumed a gradual increase in revenue in the coming years with the assumption that cellulose prices will rise again (assuming that this is a cyclical market).
Operational profitability– The company is in the process of becoming more efficient. The rate of operating profit taken in the representative year takes into account, on the one hand, the streamlining measures and, on the other hand, a certain increase in the Thai price. (It is important to note that while the rise in cellulose prices increases the profit margin of paper rolls per carton, it lowers the profit of packaging products per carton).
We assumed the cessation of losses in writing and printing papers with the conversion of the machine to the production of paper rolls into cardboard (which we estimate will take about two to three years)
We assumed an investment of approximately NIS 200 million in converting machine 4 and in accordance with the company’s investment plan.
The following is the company’s profit and loss forecast for the coming years (thousands of NIS):
