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Here’s why, just weeks ago, Sappi traded at its highest levels since listing on the NYSE in 1999.

Late last year, Sappi’s price on the New York Stock Exchange traded at just over $17 a share, the highest level since listing there in 1999. The stock has since retraced to just over $14 a share, but the recent record levels appear to have factored in the excellent quarterly earnings report seen by investors on Thursday.

Johannesburg-based Sappi’s adjusted quarterly operating income (which attempts to show like-on-like figures) for the three months to December 31 2006 (the first quarter of Sappi’s 2007 financial year) was at $63m, the highest since at least the first quarter of 2004. In five of the six preceding quarters, comparable figures were lower than $16m.

The forestry products sector has recorded a rotten century to date, but in the divisions, coated fine paper has suffered the most. Sappi is, of course, the world’s leading producer of coated fine paper (used mainly in glossy magazines and catalogues), and also of dissolving pulp. Some 46% of Sappi’s products are manufactured in Europe, 30% in North America, with the balance supplied by South Africa.

Europe accounts for 43% of group sales, followed by North America at 30%, Southern Africa at 14%, with the balance of 13% going to Asia and the rest of the world. With coated fine paper at the group’s core, Sappi Executive Chairman Eugene van As says Sappi has now implemented price increases in Europe. These are seen as ” essential” to restoring margins after five years of declining coated fine paper prices, and two years of input cost escalations.

The so-called crude oil crisis translated into heavy cost increases for Sappi, in both energy usage, and chemicals uptake.

However, Van As said that global demand for coated fine paper is growing at “a strong” 4% a year. A tough market had forced peers to shut down certain uncompetitive plants, and no new plants are on track anywhere in the world, leaving Sappi in “pole position” to exploit the situation.

Operating cash flow, for which Sappi is renowned, remained strong in the latest quarter. The group’s operating cash flow peaked in the year to September 30 2002, at $722m, before falling to $645m the next year, then $601m in 2004, then $569m in 2005, and then $464m in the 2006 financial year.

Sappi’s operating profit peaked in the year to September 30 2002, at $402m, before falling to $272m the next year, then $188m in 2004, and then crashing to a loss of $109m in the 2005 year. It then recovered substantially to $125m in the 2006 financial year.

In a statement on Thursday, Sappi said pulp prices continue to be strong, and that “we expect earnings in the next quarter to improve compared to this quarter (excluding unpredictable fair value adjustments)”.

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