Sappi Ltd (JSE: SAP), a prominent player in the paper industry, faced a challenging year in 2023, marked by a significant 10.29% decline in its share price, ending a two-year streak of gains.
The company’s latest earnings report revealed subdued operational and financial performance, reflecting the ongoing weakness in paper markets. Factors such as subdued consumer confidence, elevated interest rates, and geopolitical uncertainty contributed to dampened demand, leading to a 16% decline in group volumes across all operating regions.
Consequently, revenue plummeted by over a fifth to $1.3 billion for the quarter compared to the previous year. EBITDA excluding special items dropped by 46% to $156 million compared to the previous year, while net cash utilization surged to $69 million from $23 million generated due to reduced profitability. Moreover, earnings per share, excluding special items, experienced a substantial decrease to $0.08, underscoring the challenging operating environment. These figures highlight the hurdles Sappi faced in navigating the volatile market conditions.
Technical
Sappi’s share price has shown signs of positivity as the new year commenced, with a nearly 1% gain year-to-date. After experiencing a downtrend in 2023, the share price appears to have stabilized, finding support and trading within an ascending channel pattern. This shift in sentiment is evident as the share price crossed above the 100-day moving average.
The recent upswing originated from the ZAR 39.71 per share level, corresponding to the lower boundary of the ascending channel pattern. However, the upside momentum faced resistance at the ZAR 49.02 per share level, leading to a retracement towards the 61.80% Fibonacci Retracement Golden Ratio.
Market sentiment suggests that a close below this level on high downside volumes could indicate further downside potential, potentially targeting the ZAR 39.71 per share support level. Conversely, if the Golden Ratio acts as an intermediate support, a bullish reversal could see a retest of the ZAR 49.02 per share resistance level.
Summary
Despite facing challenges in 2023, including a decline in share price and subdued financial performance, Sappi has shown resilience in the face of market volatility. With signs of positivity in its share price year-to-date and the potential for a bullish reversal, the 61.80% Golden Ratio level stands as a pivotal price point.
Sources: Sappi Ltd, Reuters, Fitch, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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