North America United States
Industrials Paper & Forest Products
27 February 2009
Paper & Packaging
Dr. Paper's quarterly: risky
business
Mark Wilde
Research Analyst
(1) 212 250 5570
mark.wilde@db.com
Christopher Chun, CFA
Research Analyst
(1) 212 250 8342
christopher.chun@db.com
Debbie Jones
Research Associate
(1) 212 250 2956
debbie.jones@db.com
Risky business: implications for paper & packaging stocks
Markets remain challenging across the forest products, paper & packaging
sectors. The key issue is volume. Domestic volumes remain extremely weak and
few offshore markets look better. From a stock perspective, we’re quite cautious
about most paper and building materials companies and more constructive about
the packagers. Many packagers are heavily weighted toward food and consumer
nondurables. Moreover, as “commodity converters” rather than “commodity
producers”, their exposure to “price risk” is much smaller.
Deutsche Bank Securities Inc.
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Periodical
Top picks
Ball Corporation (BLL.N),USD39.93 Buy
Bemis Company (BMS.N),USD18.92 Hold
BWAY Corporation (BWY.N),USD6.34 Buy
Crown Holdings (CCK.N),USD21.02 Buy
Greif Inc. (GEF.N),USD31.65 Buy
Global Markets Research Company
Amid weak demand producers are throttling back production
Most wood products remain in oversupply with prices at or below cash for many
producers. Pulp producers have also struggled with over-supply as prices have
fallen below $400/mton on some spot transactions. C’board and uncoated free
sheet producers are having more success, showing more limited price erosion.
Currency an issue in 4Q08 and 2009
A stronger US$ means translation headwind for offshore earnings converted into
US$ -- especially for companies with exposure to Eastern Europe, Russia, Latin
America, Australia, New Zealand, etc. For the paper companies, there is already
evidence that a stronger US$ is starting to choke off export markets.
Recent DB Research Reports
Our team takes an in-depth look at issues affecting our sector: (1) Weyerhaeuser’s
wood products losses: Is it just the market? (February 13th, 2009), (2) Dr. Paper’s
2009 Paper & Packaging Survey (February 2nd, 2009), and (3) Boxed In: Paper &
Packaging in Recession (January 22nd, 2009).
Valuation & risk
Paper companies are trading around 1.0x book value and 6.1x on an EV/EBITDA
bases based on our ’09 EBITDA estimates. While at the low end of valuations
ranges, we find it difficult to make a compelling argument for most paper and
wood products companies given numerous headwinds. Packaging companies are
trading about 9.3x our ’09 EPS estimate, and a 5.4x EV/EBITDA multiple using our
’09 EBITDA estimates. We value paper companies using different metrics,
including sum-of-the-parts, and historical EV/EBITDA and P/E ratios. Our valuation
of packaging companies is primarily based on historical EV/EBITDA patterns.
EV/EBTIDA takes into account varying amounts of debt at each company. The
primary risks involve momentum in the economy, the health of demand within key
grades like containerboard and white paper, and additional energy, chemical, and
freight cost inflation. For packaging companies volume appears to be the key risk.
Companies under our coverage are also exposed to currency risk.

Table of Contents
Outlook and review........................................................................... 5
Risky business ..........................................................................................................................5
Demand on a market-by-market basis ......................................................................................5
Production & inventories...........................................................................................................6
Currency & foreign trade...........................................................................................................7
The stocks?..............................................................................................................................8
Industry performance................................................................................................................8
Recent DB research..................................................................................................................9
Earnings Information...............................................................................................................12
Balance Sheet & Cash Flow Data............................................................................................13
Paper, Packaging & Forest Product Comparables ..................................................................14
Integrated, Flexible & Rigid Packaging Comparables..............................................................15
Company specific overview............................................................ 16
DB coverage universe - Ratings & Price Target Overview ......................................................16
Ball Corp.................................................................................................................................17
Investment Thesis...................................................................................................................17
4Q08 Result ............................................................................................................................17
Historical Valuation..................................................................................................................18
Bemis.....................................................................................................................................19
Investment Thesis...................................................................................................................19
4Q08 Result ............................................................................................................................19
Historical Valuation..................................................................................................................20
Bway......................................................................................................................................21
Investment Thesis...................................................................................................................21
F1Q09 Result ..........................................................................................................................21
Historical Valuation..................................................................................................................22
Crown ....................................................................................................................................23
Investment Thesis...................................................................................................................23
4Q08 Result ............................................................................................................................23
Historical Valuation..................................................................................................................24
Domtar...................................................................................................................................25
Investment Thesis...................................................................................................................25
4Q08 Result ............................................................................................................................25
Historical Valuation..................................................................................................................26
Asset Valuation .......................................................................................................................26
Glatfelter ................................................................................................................................27
Investment Thesis...................................................................................................................27
4Q08 Result ............................................................................................................................27
Historical Valuation..................................................................................................................28
Asset Valuation .......................................................................................................................28
Greif .......................................................................................................................................29
Investment Thesis...................................................................................................................29
F1Q09 ....................................................................................................................................29
Historical Valuation..................................................................................................................30
Asset Valuation .......................................................................................................................30
International Paper ..................................................................................................................31
Investment Thesis...................................................................................................................31
4Q08 Result ............................................................................................................................31
Historical Valuation..................................................................................................................32
Asset Valuation .......................................................................................................................32
Louisiana Pacific......................................................................................................................33
Investment Thesis...................................................................................................................33
4Q08 Estimate ........................................................................................................................33
Historical Valuation..................................................................................................................34
MeadWestvaco......................................................................................................................35
O-I ..........................................................................................................................................37

Table of Contents (Cont'd)
Packaging Corp .......................................................................................................................39
Pactiv .....................................................................................................................................41
Plum Creek Timber .................................................................................................................43
Rock-Tenn ...............................................................................................................................45
Rayonier.................................................................................................................................47
Sealed Air...............................................................................................................................49
Silgan Holdings .......................................................................................................................51
Sino-Forest.............................................................................................................................53
Temple-Inland .........................................................................................................................55
Wausau Paper.........................................................................................................................57
Weyerhaeuser........................................................................................................................59
Grade Profiles & Pricing.................................................................. 61
Dr. Paper’s Pulse on Pricing....................................................................................................61
DB’s Pricing Forecast..............................................................................................................62
Market Pulp............................................................................................................................65
Containerboard .......................................................................................................................67
Coated Papers.........................................................................................................................69
Uncoated Free Sheet ..............................................................................................................70
Uncoated Groundwood...........................................................................................................71
Newsprint ...............................................................................................................................72
Tissue.....................................................................................................................................73
Bleached Paperboard / SBS ....................................................................................................74
Recycled Paperboard ..............................................................................................................75
Lumber...................................................................................................................................76
Structural Panels .....................................................................................................................77
Facility Closure Data ...............................................................................................................78
Historical Transactions ............................................................................................................89