MERC – Market expectations are for Uniform ROA to expand above cost-of-capital, but management’s concerns about pulp shipments, lumber sales, and earnings imply this may be unwarranted

• Mercer International Inc. (MERC:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Assets, with a 1.0x Uniform P/B. At these levels, markets have bullish expectations, which, given management’s concerns about pulp shipments, lumber sales, and earnings, may be unwarranted
• Specifically, management appears about the sustainability of global pulp shipments growth and lumber sales, and the potential for further net losses going forward. Should the firm fail to drive Uniform ROA above cost-of-capital levels, as management sentiment suggests, multiple compression and equity downside would be warranted