Nordic Credit Rating (NCR) said today that it had assigned a 'BBB' long-term issuer rating to Swedish forestry cooperative Södra Skogsägarna (Södra). The outlook is stable. At the same time NCR assigned an 'N-1+' short-term issuer rating. NCR has also assigned 'BBB' issue ratings to Södra's senior unsecured bonds.
Rationale
The rating on Södra reflects the company's healthy long-term profitability, which compares favourably with that of its peer group thanks to its cost-efficient operations and extensive geographic scale. The rating also reflects the company's healthy cash flows and moderate financial leverage, which result in a low leverage ratio and strong debt servicing. The current business model and ownership structure help to moderate risk and liquidity is strong.
The rating is constrained by the forestry sector's historical earnings volatility, which is mainly due to unstable prices, especially in the more commoditised product categories, and unhedged currency exposures. Environmental, social and governance (ESG) issues have a neutral impact on the rating.
Stable outlook
The outlook is stable, reflecting our view that Södra's profitability will remain strong and cash flows healthy over our forecast period. The company has already witnessed a strong rebound in volumes and prices since the outbreak of COVID-19 and structural demand for forestry products remains intact. In our view, there is insufficient new supply to cause market instability in the near term and we predict that prices will remain stable.
We could raise the rating to reflect long-term improvement and stability in prices for Södra's products driven by higher demand, improvements in operating efficiency, or further development of biofuel production, improving the company's diversification. We could lower the rating to reflect a broad economic downturn affecting prices and volumes, unforeseen mill outages affecting production and costs, or material valuation increases for Swedish kronor.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB |
| Outlook: | Stable |
| Short-term issuer credit rating: | N-1+ |
| Senior unsecured issue rating: | BBB |
If you have any questions, please contact:
Marcus Gustavsson, credit rating analyst, +46732324378, marcus.gustavsson@nordiccreditrating.com
Sean Cotten, chief rating officer, +46700442775, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.
NCR_-_Sodra_Skogsagarna_ekonomisk_forening_-_Full_Rating_Report_20_Apr._2021.pdf (522.7 KB) NCR_-_Sodra_Skogsagarna_ekonomisk_forening_-_Rating_Action_Report_20_Apr._2021.pdf (224.73 KB) Södra Skogsägarna ekonomisk förening BBB Stable Corporate N-1+ Off On