An increase of more than 50% in just three days in the share price of a company that in its most recent quarter posted an operating loss isn’t a typical event on the stock exchange. But these aren’t ordinary times and Hadera Paper isn’t an ordinary company: It’s the age of the coronavirus and Hadera is Israel’s only paper manufacturer.
Shares of Hadera Paper, which is 60%-owned by the FIMI private equity fund, closed up 14.3% to 116.20 shekels ($31.65). The company stands out as one of a tiny minority of coronavirus beneficiaries on the Tel Aviv Stock Exchange, where the economic fallout of the pandemic caused the bourse’s benchmark TA-35 index to drop 1% over the same three-day period.
“We’re working at full capacity because Hadera Paper is part of the emergency economy. The paper we produce plays a role in almost every essential need,” explained CEO Gadi Cunia.
With the coronavirus pandemic disrupting global supply chains, local manufacturers of paper products can no longer rely on imports. Port operations have ground to a halt in many places and foreign manufacturers have stopped or cut back production. Israeli companies in need of paper are embracing local suppliers.
“One of the leading local makers of toilet paper had been buying rolls of paper from the Italian company IPC, one of Europe’s biggest manufacturers. Today, that option doesn’t exist. We had no choice but to use an old machine that’s now in operation 24 hours a day,” said Cunia.
Amnir, Hadera’s paper-recycling subsidiary, is busier than ever, too. “If they don’t collect cardboard containers from the stores, the whole system will be bottlenecked. Hadera’s entire value chain – collecting waste paper and cardboard, manufacturing big paper rolls and producing cardboard packaging – is now running at full capacity.”
Hadera is making sure it can keep the pace up by taking care that each production shift is kept isolated from the others and by preventing suppliers and subcontractors from entering its facilities. That way management hopes to prevent contagion and forcing workers to go into quarantine.
The other factor working in Hadera Paper’s favor is the currency exchange rate. The shekel has lost about 8% if its value in the past month, raising the cost of imported products.
The big rise in demand and the uncertainty about imported products that Hadera Paper is now enjoying is almost the mirror opposite of what was happening in the final quarter of last year, one of the worst in the company’s history. It posted a paper-thin profit of 1 million shekels, a year-on-year decline of 98%.
Although a lot of the drop was due to the big tax benefit the company got in fourth-quarter 2018, revenues were down 20% from a year earlier at just 373 million shekels. Hadera Paper posted an operating loss of 1 million shekels, down from a profit of 22 million the year before.
The reason for the decline in revenues was lower sales of cardboard for packaging, which were down 37% in the final quarter compared with a year ago, to 95 million shekels. Writing and printing paper sales were down 23% to 106 million shekels.
Hadera Paper was also running up against stiff import competition because at that point, the shekel was strengthening against the dollar and euro. The company was forced to export more of its output but export profits were between 300 and 600 shekels less per ton than local profits.
“I think we reached rock bottom in the fourth quarter,” said Cunia.
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