ArmstrongInvestmentResearch.com
ArmstrongInvestmentResearch.com

January 2nd, 2018

James Armstrong

W: 917.410.7046

C: 614.353.7373

Covered Companies Mentioned

International Paper Company (IP)

Buy, $66.00 Target

KapStone Paper and Packaging Corporation (KS)

Hold, $22.00 Target

Smurfit Kappa Group Plc (SK3-DUB)

Buy, €33.00 Target

Domtar Corporation (UFS)

Buy, $56.00 Target

Paper, Packaging and Building Materials

10 Predictions for 2018

AIR’s Crystal Ball – With a new year upon us, most investors are rightfully asking what will change. As such, we are giving our top 10 market changing predictions for 2018 as well some insight as to what these changes will mean for the industry.

US Containerboard Prices Will Rise in the Spring – With containerboard operating rates above 97%, inventories very tight and demand from China likely higher in 2018 than 2017, we believe that the major containerboard producers will announce a price hike of $50 to $60 a ton in the spring to be fully implemented into boxes by July 1st. At one time this view was out of consensus, but with better than expected demand, we think most analysts would be disappointed if prices didn’t go up. Our only concern is that the large producers will keep prices muted to disincentive new capacity coming online, but note that if demand keeps growing at 3% per year, more capacity will be needed. On the other hand, there is a small possibility of two price increases in 2018 if China’s containerboard demand is strong enough, but we believe the large producers will resist the temptation to lift price too quickly less the strong demand environment is fleeting.

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Analyst Certification:

I, James Armstrong, certify that all the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I also certify that I have no financial interest in the debt or equity securities of the subject company(ies) including, without limitation, options, rights, warrants, futures, long or short positions.

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Explanation of Armstrong Investment Research L.L.C. Ratings

Buy – Describes securities that we expect to provide a total return (price appreciation plus yield) of 10% or more within a 12-month period (unless specified otherwise

Hold – Describes securities that we expect to provide a total return (price appreciate plus yield) between plus 10% and minus 10% within a 12-month period.

Sell – Describes securities that we expect to provide a total return (price appreciate plus yield) of minus 10% or less within a 12-month period.

CS – Coverage Suspended. Armstrong Investment Research L.L.C. has suspended coverage of this company.

NC – Not covered. Armstrong Investment Research L.L.C. does not cover this company.

Valuation Methodology

Armstrong Investment Research L.L.C.'s methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/ E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months

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Notes: Each box in the Rating and Price Target History chart above represents actions over the past three years in which an analyst initiated on a company, made a change to the rating or price target of a company or discontinued coverage of a company.

Legend:

I: Initiating Coverage

D: Dropping Coverage

B: Buy

H: Hold

S: Sell

NR: Not Rated

CS: Coverage Suspended

NC: Not Covered

N/A: Not Applicable

Distribution of Ratings (As of 1/2/2018)

Coverage Universe

Rating   Count     Percent

Buy        6              40%

Hold       8              53%

Sell         1              7%

Investment Banking Clients Past 12 Months

Rating   Count     Percent

Buy        0              N/A

Hold       0              N/A

Sell         0              N/A

Other Disclosures

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