Sappi Limited (JSE: SAP) unveiled its 2023 year-end results on a pivotal Thursday, setting off a remarkable 5% surge in its share price at market open. This past year proved to be a true test for the company, marked by the formidable presence of ongoing geopolitical tensions, the shadow of sluggish global economic growth, relentless waves of surging interest rates, and a somewhat sluggish Chinese economy, all casting a shadow over the market for its sought-after products.
Moreover, the company confronted the additional hurdle of customers gradually depleting their stockpiled inventories from the latter part of the preceding year, further intensifying the already intricate trading landscape. In the face of these formidable challenges, Sappi resolved to maintain its selling prices and initiated a series of cost-saving measures across its operations. These strategic moves paid off, yielding an impressive EBITDA, excluding special items, totalling $731 million for the year.
In terms of revenue, the company reported $5.81 billion, a dip from the previous year’s $7.29 billion, while the operating profit stood at $432 million, a marked decline from the $1.04 billion recorded the year before. Though these figures might appear subdued at first glance, they belie the true resilience of Sappi’s operations in the face of an exceedingly demanding economic environment.
Technical
On the 1D chart, an ascending channel breakdown found support at a demand zone around R38.78 before pivoting onto its impressive advance in the Thursday session. Now, testing the resistance from the 50-SMA (blue line) at R41.77, there could be a momentum shift in the directional price action for the stock.
A sustainable break above the 50-SMA and the 25-SMA (green line) at R42.17 could see the stock price soar toward resistance at R42.61. A change in polarity could then see the multiple SMAs acting as support to the bullish cause, with higher resistance at R44.20 and R45.96, then coming into the equation in the longer term.
However, should the price fail to move above the 50-SMA, the initial rally could fade in the Thursday session, with the first level of support established at R40.57, the 61.8% Fibonacci golden ratio. If this level fails to contain the bearish counterattack, the prior demand zone at R38.78 could be crucial once more in preventing a sustainable bearish run toward R37.32 and R36.29.
Summary
An impressive 5% run in the share price of Sappi Limited followed its earnings report, but the price seems to be losing steam at the 50-SMA resistance at R41.77. If the price fails to clear this hurdle, there could be a retreat toward support at R40.57 in the Thursday session.
Sources: Sappi Limited, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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