Lingerie puts blush on Sappi’s profits

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Kamlesh Bhuckory

SAPPI, the biggest maker of dissolving wood pulp, is luring investors with its push into lingerie as its bond yields fall to a record.

Yields on the Johannesburg-based company’s note due in April 2018 have fallen 158 basis points since October 1 last year, the start of its fiscal year, to an all time low of 4.505 percent on Thursday, according to data compiled by Bloomberg. That compares with a 78 basis-point decline in the average yield for emerging-market pulp and paper companies in JPMorgan Chase indices.

Eucalyptus tree cellulose for clothes sold by companies including lingerie maker Victoria’s Secret and Zara was delivering profit margins of about 33 percent for Sappi, compared with 7 percent for its bigger paper unit, the company said.

Sappi is focusing on wood pulp as paper consumers switch from newspapers and magazines to digital publications.

“Sappi’s commitment to reduce debt and the efforts to generate cash are seen as positive by investors,” said Thomas Korhammer, a fund manager at Raiffeisen Capital Management.

Sappi’s net debt would probably decline 11 percent to $2 billion (R20bn) by the end of September from March as its strategy to expand in dissolving wood pulp boosted cash generation, chief executive Ralph Boettger said last week. Net income surged to $32m from $2m in the three months through March, with pulp accounting for 75 percent of operating profit. – Bloomberg


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