Stock Analysis & Valuation Bergs Timber AB (publ) (0H2W.L)

• Previous Close: £44.50
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method	2.60	-94
Graham Formula	7.90	-82

Strategic Investment Analysis

Company Overview

Bergs Timber AB (publ) is a Sweden-based company specializing in the development, production, and marketing of processed wood products. Founded in 1919 and headquartered in Vimmerby, Sweden, Bergs Timber operates in Sweden, the UK, and internationally, offering a diverse range of wood products. The company provides treated and untreated wood for construction, DIY sectors, and garden products, including façade panelling, carcases, decks, fences, and furniture. Additionally, Bergs Timber supplies sawn wood for construction and further processing, as well as pellets and fire logs for heating. The company also offers port and distribution services, enhancing its supply chain efficiency. As a key player in the Paper, Lumber & Forest Products industry under the Basic Materials sector, Bergs Timber leverages sustainable forestry practices to meet growing demand for eco-friendly building materials. With a strong market presence in Europe, the company is well-positioned to capitalize on trends in green construction and renewable resources.

Investment Summary

Bergs Timber presents a compelling investment opportunity with solid financial performance in FY 2022, including SEK 3.27 billion in revenue and SEK 231 million in net income. The company's diluted EPS of SEK 6.66 and strong operating cash flow of SEK 491 million underscore its profitability. A dividend of SEK 2 per share further enhances its appeal to income-focused investors. However, the company operates in a cyclical industry, exposing it to macroeconomic fluctuations and raw material price volatility. Its beta of 1.15 indicates higher market sensitivity, which may deter risk-averse investors. Bergs Timber's focus on sustainable wood products aligns with global environmental trends, potentially driving long-term growth. Investors should weigh its strong cash position (SEK 268 million) against moderate debt levels (SEK 239 million) and consider the impact of capital expenditures (SEK -107 million) on future expansion.

Competitive Analysis

Bergs Timber competes in the processed wood products market by leveraging its vertically integrated operations, sustainable sourcing, and diverse product portfolio. The company's competitive advantage lies in its ability to offer both treated and untreated wood products, catering to construction, DIY, and garden markets. Its focus on eco-friendly materials aligns with increasing regulatory and consumer demand for sustainable building solutions. Bergs Timber's presence in Sweden and the UK provides geographic diversification, reducing reliance on any single market. However, the company faces intense competition from larger global players with greater economies of scale. Its niche in treated wood and garden products differentiates it from competitors focused solely on construction materials. The company's moderate market cap (SEK 1.54 billion) limits its ability to compete on price with industry giants, but its specialization in high-quality, processed wood products allows for premium pricing. Bergs Timber's strong cash flow and low debt-to-equity ratio provide financial flexibility to invest in innovation and market expansion. The company's long-standing reputation since 1919 enhances brand trust, though it must continuously adapt to technological advancements and shifting consumer preferences in the lumber industry.

Major Competitors

• Södra Skogsägarna (SOFV.ST): Södra is a major Swedish forest owner association with integrated wood products operations. It competes with Bergs Timber in sawn wood and processed products but has a larger scale due to its cooperative structure. Södra's strength lies in its vast forest holdings, ensuring raw material security. However, its focus on bulk products limits its presence in niche markets where Bergs Timber excels.
• Holmen AB (HOLM.ST): Holmen is a diversified Swedish forest products company with operations in paper, wood products, and renewable energy. It competes with Bergs Timber in sawn wood and construction materials. Holmen's larger size and diversified revenue streams provide stability, but Bergs Timber's specialization in processed wood products allows for deeper market penetration in specific segments.
• Stora Enso Oyj (STOR.ST): Stora Enso is a global leader in renewable materials, competing with Bergs Timber in wood products and construction solutions. Its extensive R&D capabilities and international presence give it an edge in innovation and market reach. However, Bergs Timber's agility and focus on treated wood products enable it to serve niche markets more effectively than Stora Enso's broad-based approach.
• UPM-Kymmene Oyj (UPM.HE): UPM is a Finnish forest industry giant with significant operations in pulp, paper, and engineered wood. While it competes indirectly with Bergs Timber in wood products, UPM's primary focus on pulp and paper reduces direct competition. Bergs Timber's advantage lies in its specialized treated wood products and garden solutions, areas where UPM has limited presence.