Industry Reports

Deutsche Bank Reports Summaries

060222 Deutsche Bank - Glatfelter

Deutsche Bank - Equity Research

Glatfelter {Ticker: GLT.N, Target Price: USD 20, Recommendation: Buy}.

GLT buying new page specialty paper assets.

There was speculation regarding this $80MM cash deal within the trade, and it is expected to close by Mar 31st. Although Glatfelter has provided only limited specifics, their own numbers suggest that the deal should prove a powerful boost to cash flow and reported earnings.

What are they buying?

2005 Revenues were $440MM. 440K tons of specialty/carbonless capacity (located at miil in Chillicothe, OH and converting plant in Fremont, OH). The transaction price of $80MM is lower than the $87MM of working capital GLT estimates is currently within the business. The business was well invested under prior ownership by Mead.

Estimates

With this deal, GLT's 2006 revenue will more than double to over $1bn. We are, raising our '06 estimate from $0.70/share to $0.80/share and raising our '07 estimate from $1.00 to $1.30. We are raising our target price from $18 to $20.

Valuation Risks

Our target price represents approximately 90% of 10x our peak EPS estimate. We think the stock could reach 10x peak EPS, based on historical trading patterns, and we have chosen to discount this level by about 10% based on risks the company currently faces. GLT faces significant integration risks with its purchase on New Page's Chillicothe mill. Demand and pricing for most of Glatfelter's products fluctuate with general economic conditions. Also, spikes in costs for raw materials, especially market pulp, can hurt.

For more information, please click on the attached document.

060221 Deutsche Bank - January Containerboard

Deutsche Bank - Equity Research

January Shipments Were Weak on Y/Y basis

January corrugated box shipments fell 2% y/y on an average week basis. However, December volumes were up 8.7% y/y. January's decrease is the 1st y/y decrease in 5 months. We think some of January's weakness owes to “borrowing” in December.

Inventories

Inventories rose slightly more than normal, but remain at historically lean levels. Thanks to a 97.4% operating rate, inventories rose 196K tons – about 18K more than a “typical” January increase. With prices rising rapidly and the industry seemingly headed for better times, keeping inventories in balance is critical.

Prices

A $50/ton price hike has been announced for late March/early April. A $40/ton January increase on linerboard & corrugating medium appears to have taken hold with relative ease. A $30/ton October hike also went in with ease.

The Stocks?

We remain positive on the stocks. We especially like SSCC and TIN. SSCC is the most “leveraged” play on the containerboard cycle, but also required the highest degree of conviction that the cycle will work. Temple offers a stronger balance sheet and is an intriguing asset story. IP & WY also offer significant containerboard leverage.

For more information, please click on the attached document.

060214 Glatfelter's 4Q in 100 Words

Deutsche Bank - Equity Research

Glatfelter {Ticker: GLT.N, Closing Price: USD 14.87, Target Price: USD 18.00, Recommendation: Buy}.

Better than expected. GAAP EPS = $0.61, $0.12 net of special items. DB was @ $0.06, FC @ $0.09. Pos's: strong vol's & improving prices in specialty paper, outlook for '06 improving in core op's, $7-9MM cost take-out in Europe, expecting $150-200MM for 40K acres of HBU land. Neg's: higher input costs.

Specialty Papers. EBIT= $2.0MM vs. $4.0MM y/y. Strong vol's (+8.2% y/y, driven by +21% y/y gain in eng'd prod's), Prices (+$2.3MM y/y.) Higher input & maint. costs caused lower EBIT, despite higher vols & modestly higher price. With UFS prices rising, expect improvement in 1H06. Roll stock rose $60/ton in Jan, GLT has just announced $50 on trade book.

Long Fiber & Overlay. EBIT= $2.3MM vs. $5.5MM y/y. Vol's down just 1.7% y/y (3Q vol's were down 9.9% y/y), prices down $1.5MM y/y on constant currency basis. 4Q was still sluggish, but GLT seeing hints of recovery.

Other. (1) Disclosed land strategy: planning to sell 40K acres (GLT has 80K) over 3-5 yrs & expecting $150MM-$200MM in pretax proceeds. Sensible trade??? Selling land will only boost fiber cost $0.03- 0.06/share per year. In 4Q, sold 2.5K acres for $21MM. (2) Recovered $18MM in insurance for Fox River environmental issues. (3) European restructuring program moving ahead. $7-9MM/yr savings by '08. (4) No news on rumored Chilicothe mill acq'n - - - but, GLT again noted difficulty of doing good deals in sector. (5) '06 capex remains at lean $30-35MM - well below D&A.

Change in View? Very encouraging qtr - good cyclical signs, good LT strategy. Estimated land values substantially higher than expected and outlook for core markets is improving. Maintaining Buy and $18 target. Boosting estimates slightly: '06 goes from $0.60 to $0.70 (1Q = $0.15), '07 goes from $0.85 to $1.00.

For more information, please click on the attached document.

060213 Dr Paper's Pulse on Pricing

Deutsche Bank - Equity Research

MARKET PULP

Producers garnered $20/tonne increases in Feb on NBSK; chances of success were virtually assured when Lat. Am. producers joined the hike effort with hikes on eucalyptus grade hardwoods. SBSK rose $10/tonne. Domestic hardwood producers did not enjoy as much success in their hike efforts as supply/demand fundamentals remain challenging. Planned shutdowns by Neenah Papers later this month and by BOW and WY in April will further tighten the NBSK market during a seasonally strong period and could lead to further price hikes. Demand continues to be strong out of Asia and could fuel a third price hike on exports to the region. Current export prices on NBSK to China are $540/tonne.

CONTAINERBOARD

Prices are rising - even faster than expected. Transaction prices on U.S. kraft linerboard and corrugating medium rose $40/mton in January - fully reflecting the price hike. Spot prices have reportedly risen further. A planned shutdown of WY's Plymouth, N.C. 350K tpy recycled linerboard machine in February will make supplies even tighter. Dec. box shipments were up 8.7% y/y. GP has already announced a March $50/mton hike, and we believe they will be joined by other producers, most likely by April. The big challenge now is raising box prices.

RECYCLED BOARD

RKT joined CSAR with a $15/ton hike on URB grades for March; they are the third producer to announce hikes for March. They join Sonoco products who announced a similar hike back in January. Q4 "surcharge" efforts found mixed success. All producers have experienced margin compression as a result of rising fuel and energy costs. OCC export prices were mostly flat this month.

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060210 Deutsche Bank - Dr Paper's Weekly Wrap Up

Deutsche Bank - Equity Research

Koch wants to make $$$! GP has announced $50/ton containerboard hike for 3/10. Other producers are likely to follow. The key issue? Will the big integrated producers put box volume on the line to move prices?

European containerboard capacity is shrinking. 265K/mtons of probable closures out Smurfit Kappa already - more moves are possible. SCA has suggested they'll shutter 350K. With US market already tightening, Euro closures could snug-up global market.

Pulp market continues to tighten. Continued mills closures in Canada are helping swing mkt psychology. Last week BOW announced closure in Thunder Bay, Neenah's Terrace Bay mill could be next.

For more information, please click on the attached document.

060210 Caraustar's 4Q in 100 words

Deutsche Bank - Equity Research

Caraustar {Ticker: CSAR.OQ, Closing Price: USD 10.40, Target Price: USD 9.00, Recommendation: Hold}.

About in-line. Reported GAAP EPS of $(1.24). Pointing to $0.01, net of specials DB @ $0.00 & FC @ $(0.01). Comps: 3Q05 = $0.01 & 4Q04 = $0.16. Pos: lower fiber costs, higher gypsum facing paper vols. Neg: higher energy costs, lower tube & core vol's.

Vols. Mill vol's (excl JV mill) -2.6K/tons y/y and 4Q op. rate of 92.7%. PBL vol's +23% y/y & +5% q/q. Other vol's: T&C -5.5% y/y, - 2.8% q/q, FC +3.1% y/y & q/q. The Premier (PBL) JV mill will continue to move volume away from medium and into gypsum facing paper.

Price/Margins. Mill margins +$14.4/ton q/q (price +$9.8/ton, fiber cost -$14.5/ton, fuel & energy cost +9.90/ton) but -$6.7/ton y/y. T&C margins +$13.2/ton q/q (price +$15.3, paperboard cost -$5.40) and +$65.1/ton y/y - - - improved margin for 4 straight qtrs.

Other Issues? (1) Initially, we thought CSAR obtained nice price for Standard; some comps suggesting otherwise??? (2) $25/ton "surcharge" now a "hike"; $15/ton more starts Mar. 10th (3) Liquidity strong after Standard sale, which provided $150MM in cash & extra $28MM of revolver availability. (4) 1Q headwinds: benefit from decline in energy prices to be muted by hedging, and cash from Standard sale won't be used to call debt until at least 4/1.

View? Slightly more favorable, but maintain Hold. Gypsum facing paper business continues to shine and some prices are moving higher, but many markets remain sluggish and we wonder how long OCC can stay this low. Boosting estimates slightly: '06 goes from $0.50 to $0.70 (1Q = $0.12) and '07 goes from $1.00 to $1.10.

For more information, please click on the attached document.

060210 Deutsche Bank - Industry Alert

Deutsche Bank - Equity Research

Trade sources are reporting that Georgia-Pacific is out with a $50/ton containerboard hike for March 10. This is the third hike since October and the largest of the three moves. While the spring initiative is not a total surprise, the move comes a bit earlier than we expected. If successful, this would likely lead to higher '06 earnings estimates for most containerboard producers. Producers have already pushed through $30/ton in October and another $40/ton in December. While 3 hikes in 5 months would be highly unusual, we give it a solid chance of success, considering the extremely tight industry fundamentals. The last reported month (December '05) showed box shipments up 8.7% y/y on an average week basis, the biggest jump since January '04. Inventories are lean, and the operating rate is solid at over 94%. The companies with the most leverage to containerboard include PKG, SSCC, and TIN. Other names with significant exposure include IP, WY, and GEF.

For more information, please click on the attached document.