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Industrial Correspondent
ANALYSTS surveyed expect no significant improvement in pulp and paper group Sappi's performance for the quarter to March, on which the group is reporting next week, due to the weak global economy.
Three analysts came up with earnings a share forecasts of $0,22, 0,23 and $0,24. This compared with $0,23 in the December quarter and $0,26 in the March quarter last year. Based on an uncertain global economic outlook, analysts were also cautious in forecasts for the rest of the year. One believed sector sentiment may turn negative.
Sappi nonexecutive chairman Eugene van As said at the group's annual meeting last month that the group expected a better performance in the current financial year than it reported last year.
Analysts said much depended on whether expected improvement in the US market materialised. US conditions were expected to have improved in terms of price and volumes. But one analyst said Sappi's wood costs in the US were higher on factors like increased energy costs.
Analysts expected lower prices in Europe and higher prices in forest products during the quarter. Sappi's SA operations were running smoothly and demand remained strong in the quarter. The rand's gains, however, would have a negative effect on domestic operations.
One analyst expected the SA operations' margin to drop from about 30% to about 25% going forward as a result of the rand's gains. Sappi's margin at this level was still significantly higher than its counterparts in the US and European markets, said the analyst.
Analysts warned that the poor performance by M-real, the world's second-biggest maker of coated fine paper used in glossy magazines, should not be seen as an indication of Sappi's performance. M-real recorded a 43% drop in profits, blaming lower paper prices. "Sappi is a better operator than M-real. It has better assets and gets better deals on pulp," said one analyst.
New CE Jonathan Leslie took over from Van As this month. He is believed to have been "on a guided tour of Sappi operations worldwide as well as the industry" since February, when he was appointed.
Leslie used to head Rio Tinto's diamonds and gold operations. "He has a lot to digest still. I don't expect him to say anything sensible just yet," said an analyst.
The stock closed unchanged at R89 on the JSE Securities Exchange SA yesterday.
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