For CPH, 2020 was difficult. The paper business, its most important division in terms of sales, posted 26% lower sales and had slipped slightly into the red at operating profit level. The pandemic had exacerbated the structural decline in demand for newsprint and put pressure on paper prices. In the previous two years, the latter had recovered slightly after paper producers across Europe had steadily reduced their capacities.

At its annual media conference in February, CPH again forecast a negative operating result in the paper sector for 2021. Then inflationary pressures in the commodity markets spilled over into the paper sector, causing a surge in prices. CPH announced an €80 price increase for newsprint at the end of April, effective from the beginning of July. Measured against last year's average market price, this represents an increase of around 18%. However, prices were still falling at the beginning of 2021. Accordingly, the increase assumes a lower level.

But CPH is not revising its forecast of red figures in the paper business. When asked, it explains that it is feeling strong pressure on margins. This is because the prices for recovered paper and pulp, the two most important raw materials for paper production, have risen sharply in recent months. CPH produces about 90% of its paper from recovered paper, and even though CPH is partially protected from short-term price fluctuations thanks to contracts with suppliers, the price increase as of July will not fully compensate for the cost impulse from the raw material side.

Although CPH is currently still feeling pressure on margins, the medium-term outlook in the paper sector is likely to be more favorable. Price increases triggered by the raw material side generally affect converters directly; they can usually only be passed on with a delay. When raw material prices then fall again, the delay effect benefits the converters.

CPH shares are trading below book value (around CHF 78 per share) and also below sales, indicating a moderate valuation, even if the prospects for the paper business remain uncertain for the time being. They can be bought after the correction of recent months.

Read the entire article in Finanz und Wirtschaft here (in German).