Industry Reports

Deutsche Bank Reports Summaries

060109 Deutsche Bank - Caraustar Industries

Deutsche Bank - Equity Research

Caraustar {Ticker: CSAR.OQ, Closing Price: USD 9.31, Target Price: USD 9.00, Recommendation: Hold}.

CSAR to sell coated recycled mills & contract packaging plants Late on Friday, Caraustar announced its intention to sell all coated recycled boxboard mills as well as its specialty contract packaging plants. Both businesses will be held for sale and actively marketed. Based on these decisions, the company will take non-cash impairment charges in 4Q05 that total $92-105MM. The cash charges should total just $1-2MM. The move represents a dramatic shift in strategic direction as the company now moves away from a focus on vertical integration in the folding carton market.

A positive step toward "fixing" the recycled boxboard market The sale of the mills could set the stage for rationalization in the coated recycled boxboard industry. The CSAR news comes less than a year after Rock-Tenn acquired a major bleached boxboard & folding carton competitor (Gulf States) and less than 2 months after Smurfit- Stone, announced its decision to exit both its recycled boxboard and folding carton operations. We think the CSAR news should be regarded as an incremental positive for competitors like RKT and SSCC.

More news to come?

We believe that CSAR may have further announcements over the next several days, possibly involving at least one of its two highly profitable gypsum joint ventures with Temple-Inland. Over the last few years, Caraustar has worked hard to execute cost cutting initiatives. With the internal restructuring largely complete, the focus seems to have shifted to streamlining its business mix.

Valuation/Risk

We are making no change to our long-standing Hold rating or to our estimates for the moment. Our target price assumes that CSAR would trade at 1.2x book, 3.6x peak P/E, and 6.0x normalized P/E. These ratios are well below group averages, but we think that this is appropriate given CSAR's high level of financial leverage and the soft fundamentals in most of CSAR's businesses. Other risks involve strength in the economy and overcapacity in folding carton markets.

For more information, please click on the attached document.

060106 Deutsche Bank - Dr Paper's Weekly Wrap Up

Deutsche Bank - Equity Research

Pulp prices moving up? Parsons & Whittemore matched Tembec's $20/mton SBSK hike on Jan. exports to Europe. Canfor, Mercer & others are now out with $20/mton NBSK Jan hikes to Asia & Europe. POP trying to move NBSK prices in NA.

Newsprint consumption decline accelerating? Nov. consumption at US dailies fell 7.0% y/y. Cap. closures have given co's pricing power - but can they earn acceptable returns while demand decline accelerates?

C'board closures in Europe? High nat gas + over-capacity make recycled biz. in Europe tough. Now merged Smurfit Kappa is engaging trade/union groups about capacity shuts.

For more information, please click on the attached document.

060106 Deutsche Bank - Company Alert

Deutsche Bank - Equity Research

Crown Holdings {Ticker: CCK.N, Target Price: USD 22, Recommendation: Buy}.

Some senior executives at Crown Holdings sold large blocks of stock earlier this week. Should investors worry? We don't think so. We do not view these sales as indications of lack of confidence in the stock, but as a measure of prudent financial diversification. The sales represent a modest portion of personal stakes and come after the stock is beginning to recover from a steep drop earlier this decade.

Chairman & CEO John Conway sold 460K shares at an average price of $19.67. While significant from a notional $ standpoint, the shares represent less than 20% of Conway's total equity(shares, restricted shares, and options) in the company. Much of Conway's personal wealth remains in Crown Holdings. At 60yrs of age, the sale is probably overdue from a diversification standpoint. Timothy Donahue, Senior VP of Finance, sold 120K shares at an average price of $19.85. His sale represents less than 30% of his personal stake in the company. Donahue is fairly young and the sale is his first in roughly a decade. He has substantial incentive to stay with the company. We view Donahue as a likely successor to the current CFO, Alan Rutherford.

We believe it is important for management to be allied with shareholders through proper incentives, including equity ownership. However, we also think a measure of personal diversification is critical for all personal investors --- including corporate executives. The Crown management, including Conway and Donahue, have done a good job in patiently rebuilding value for shareholders these last few years. These sales look like prudent and well-earned diversification moves. We continue to rate Crown a BUY because of its strong free cash flow potential and solid growth prospects in emerging markets.

For more information, please click on the attached document.

060104 Deutsche Bank - November Newsprint

Deutsche Bank - Equity Research

Another weak consumption month. November consumption at the U.S. Dailies fell 7.0% y/y and total U.S. Consumption was down an estimated 3.8% y/y. The comparison is "apples to apples" as both Nov. '05 and Nov. '04 had 4 Sundays. The U.S. daily's decline exceeds the YTD drop of 5.3%.

Inventory situation relatively static. Total inventories fell by 47K mtons m/m, a bit more than the 43K mton decline which normally occurs between October and November. Publishers saw their inventories decline by 22K mtons and mills saw their inventories decline by 25K mtons. On a "days of supply" basis inventories rose from a revised 36 days supply to 37 days supply m/m.

View? Despite falling consumption, producers have taken out enough capacity in recent years to maintain fairly robust operating rates and keep inventories in check. However, if current consumption declines continue there will likely be a need for accelerated closures to maintain pricing power. The real trick? Moving from higher prices to real profitability.

For more information, please click on the attached document.

060104 Deutsche Bank - Bowater

Deutsche Bank - Equity Research

Bowater {Ticker: BOW.N, Closing Price: USD 30.77, Target Price: USD 28.00, Recommendation: Hold}.

Bowater CEO Arnie Nemirow to retire during 2006

The retirement notice comes about one year earlier than we expected. Nemirow will reportedly wait until a successor is in place, suggesting that his departure date could slip a bit. We suspect that won't happen.

The insight for shareholders?

We think it is unlikely that Nemirow would be leaving if a major transaction was in the offing - no pending sale of the company. He would have enjoyed replicating the 2000 "top of the market" sale of Consolidated Papers engineered by his old neighbor, George Mead. Unfortunately, that movie is no longer playing. Thus, this retirement decision is somewhat analogous to Madison Dearborn's recent decision to trim its PKG stake.

The lesson from Nemirow's legacy?

While we regard Arnie as among the best and most rational managers we deal with, the stock has been a disappointment in recent years. Strong currents can overwhelm even the best rowers. The successes spawned by Nemirow's initial "clean-up" efforts at Bowater in the mid-90's have given way to the challenges of a rapidly maturing industry, a fragmented competitor base, and volatile costs & currencies.

Valuation/risk?

Our target price is based on 8.5x on an '05E EV/EBITDA basis and 7.1x on an '06E EV/EBITDA basis. Both of these ratios are at slight discounts to group averages, but we think that the discounts are warranted based on market pressures discussed below. The primary risks involve strength in the economy, the secular decline of newsprint demand, potential cost pressures, the US$/CN$ exchange rate, and balance sheet issues.

For more information, please click on the attached document.