Year-end report January–December 2025

Billerud reported a weaker Q4 and full-year 2025 with net sales down 19% YoY to SEK 9,238m (currency-neutral -14%), adjusted EBITDA falling to SEK 818m (margin 9% vs 13) and net profit of SEK 304m (EPS SEK 1.22 vs 3.24). North America delivered strong profitability (≈20% EBITDA margin and ~50% of group EBITDA) while Europe suffered from weak demand and oversupply; management announced cost savings, reduced investments, and proposes a reduced dividend of SEK 2.00/share (from 3.50). Management expects continued weak European pricing in Q1 2026, accelerating declines in Nordic pulpwood costs and will exit a BCTMP JV with an estimated non-cash Q1 charge of ~SEK -50m.

Analysis

Market structure: Billerud’s results crystallize a bifurcated market—North American packaging/graphic paper (strong demand, tariffs helping local players) vs. Europe/Asia (oversupply, price pressure). Expect winners with local manufacturing and scale (US names) to gain share; European producers with exposed board lines will see 5–15% EBITDA margin compression through H1 2026 unless capacity rationalizes. Short-term supply/demand is loose in Europe (board oversupply) while Nordic pulpwood falling ~20% should lift margins from Q2 onward by an estimated 100–300bps for nearby producers.

Risk assessment: Tail risks include a deeper demand shock in Europe (another -10 to -20% volume drop) or sudden reversal of US trade protections; losing free emission rights (Billerud) and permit delays (BCTMP JV exit) are operational shocks. Immediate (days–weeks): sentiment and FX swings; short term (months): Q1 prints and pulpwood pass-through; long term (quarters–years): capacity rationalization and successful North American expansion. Hidden dependencies: working capital moves and inventory destocking can amplify QoQ volumes by ±10–15%.

Trade implications: Direct plays — establish tactical longs in US packaging names (Graphic Packaging GPK, International Paper IP, WestRock WRK) and hedge European exposure (short Mondi MNDI or equivalent). Use calendar spread options: buy 3–6 month call spreads on GPK/IP to play Q2 pulpwood-led margin recovery and buy 3-month 10% OTM puts on MNDI to hedge Europe exposure. Rotate 3–6% portfolio weight from European paper to US packaging ETFs/names if Q2 pulpwood decline materializes (>15% from Q4 peak).

Contrarian angles: Consensus underestimates speed of Nordic wood-cost deflation and overestimates permanent demand loss in Europe; margins could snap back faster than market expects if mills cut output ~5–10% and pulpwood costs drop >15% by June. History: earlier cycles (2015–2017) show sharp margin rebounds after 3–6 month oversupply once raw material cost realignment and capacity restarts stabilize. Risk: aggressive shorting of European names can fail if consolidation bids or government support accelerate.

Key Decisions for Investors

• Establish a 2–3% long position in Graphic Packaging (GPK) by end of Q1 2026, target 20–30% upside over 12 months if US margins expand 200–400bps; set a hard stop at -12% and take profits at +25%.
• Initiate a market-neutral pair: long International Paper (IP) 1% and short Mondi (MNDI) 1% (or a European packaging proxy) to capture expected N.A. outperformance vs. Europe into Q3 2026; rebalance if spread narrows >50%.
• Buy 3–6 month call spreads on GPK or IP (buy ATM, sell 15–20% OTM) sized 0.5–1% portfolio to play Q2 pulpwood-driven margin recovery; simultaneously buy 3-month 10% OTM puts on MNDI sized 0.5% as tail-hedge.
• Reduce direct exposure to European paper/board equities (e.g., holdings tied to Billerud-like profiles) by ~50% until sequential pricing stabilizes (look for QoQ price improvement >0% and inventory days down >10% by Q3 2026) or until evidence of capacity rationalization is announced.