Milling About with Deep Value: Rayonier Advanced Materials $RYAM, Mativ Holdings $MATV, and Magnera $MAGN

As a value investor and as a bit of a contrarian, I have to admit I occasionally get interested when a cyclical industry is aggressively not sexy. Why is the stock cheap? Nobody loves it until that part of the cycle when the earnings peak.

One of my favorite screens for new ideas is to look at insider buying. Not all insider buying is created equal, I’ve seen plenty of directors make bad stock purchases. CEO’s are often drinking their own cool-aide, it makes them better leaders, but their judgement is suspect. My favorite inside purchases come from CFO’s, COO’s, and other corporate officers. They aren’t infallible, I remember the CFO of Diebold buying the stock right before they declared bankruptcy, but they are an invitation to dig deeper.

A seriously unsexy industry with heavy insider buying recently is paper mills. This isn’t my first foray into their world, which is why my news algorithm keeps feeding me articles about paper mill closures, at least one a month. But that’s how cyclical industries go, they are either shuttering capacity, or raking in huge heaps of cash. This is the point of the cycle when they are shuttering capacity, the stock prices are bottom of the barrel, and insiders are buying hand over fist.

If I could make the perfect portfolio for an active investor, it would have to be to find ten unrelated cyclical businesses, so that I could have frequent opportunities to sell high and buy low. Paper Mills seem to be a somewhat unrelated cycle. I say somewhat unrelated because interest rates and market multiples still matter, but take a look at the stock price of Rayonier Advanced Materials (RYAM) since 2020.

Rayonier Advanced Materials (RYAM):

RYAM Stock Price:

Someone prudent at market timing would have had three separate opportunities to triple their money within the last five years. That’s one heck of a sexy opportunity for something as un-sexy as paper mills. The stock price of RYAM is currently $3.74, and the CEO, Delyle Bloomquist, just spent a quarter of a million dollars buying the stock at $3.95 on May 16th. Of course I am early, I always seem to be. This chart looks like it could fall another 20%, or chop sideways for another six months. But as long as the company has a stable balance sheet, and the world still needs cellulose fluff in their diapers, then it will be back at $10 a share again soon enough. What amazes me here is the speed of the cycle, especially as a solid chunk of my portfolio has been sitting around waiting for offshore oil drilling and platinum group metals for a couple of years already. RYAM is a business that you can date, but not marry; it is a cyclical industrial, unfortunately, not a long term compounder, so you have to pay attention to when to exit.

The big weakness in RYAM is their balance sheet, $700 million of senior secured debt at SOFR +7% due in 2029 is painful. Paying $88 million in interest expense out of $138 million in EBITDA in the trailing twelve months is cutting things a little close. I have been accused of loving over-levered shitcos. But this is a capital intensive industry, all their competitors are in the same boat. For the trailing twelve months, RYAM has 1.56x EBITDA to interest expense, and currently trades at a price to sales ratio of 0.16x.

Mativ Holdings (MATV):

Mativ Holdings (MATV) is another paper mill / modern advanced materials business. It’s not all just diaper fluff, there is a lot of research and development embedded in the business. MATV has about $75 million in interest expense in the trailing twelve months, and that is balanced against about $165 million in EBITDA for the period, although you have to look through a non-cash asset impairment charge of $446 million to see it.

It’s not unusual for businesses during their trough earnings to be forced to re-mark some of their assets. These non-cash writedowns show up in GAAP earnings, and scare away a lot of quantitative strategies. When that quarter rolls off the trailing twelve month figures, suddenly earnings look like they have improved substantially, but the improvement is artificial.

MATV’s interest rate is a couple of points better than RYAM, with senior secured debt at 8% as opposed to over 10%. Their CEO, Shruti Singhal, just spent $230,000 buying the stock at $5.76 a share on May 29th, and you can buy it today at $6.17. Price to sales of 0.17x for MATV is on par with 0.16x for RYAM, despite the superior 2.2x EBITDA to interest expense coverage.

Magnera (MAGN):

And then there is the recently formed Magnera (MAGN), which is a chimera of the old Glatfelter and a subsidiary of Berry Global. They have about $156 million of annual interest expense off of $228 million of trailing twelve month EBITDA. But the merger is fresh, and we only have one quarter of data of the merged entity to extrapolate. There are likely cost savings to realize, and I only have Q1 2025 data, which was a weak quarter for RYAM and MATV as well. Magnera might be a diamond in the rough, but it comes with much less certainty. In exchange for the uncertainty, the price to sales ratio is 0.13x instead of 0.16x or 0.17x. But given that MAGN is about half again as much larger than RYAM or MATV, it might eventually fetch a higher multiple and be included in several small cap etfs.

Magnera CEO, Curt Begle, bought $280,000 of stock on May 9th, and another $500,000 of stock on February 11th of this year. He paid $14 and $21 respectively, but you can buy it today for $12.17. In camaraderie with Curt, Magnera had insider purchases from four directors, all spending over $200,000 each.

Magnera has the cheapest debt of the three, with about one third at 7.25% maturing in 2031, and a fourth at 4.75% due in 2029. There is also a term loan with an unspecified interest rate from the recent merger.

While we only have one quarter of combined results for the merged entity, we do have management’s guidance for full year 2025. Management is guiding for $360 million of adjusted EBITDA. Putting their $156 million of interest expense against that would give 2.3x EBITDA to interest expense, or the best of the three. But I haven’t given RYAM or MATV the benefit of forward guidance or adjustments.

Conclusion:

Giving all three firms the benefit of forward guidance and adjustments to EBITDA gives the following results, although Mativ Holdings did not give explicit full year 2025 EBITDA guidance, but they did promise $10 million in cost reductions.

RYAM: $88 million interest expense and $175 million 2025 adjusted EBITDA 1.98x interest expense.

MATV: $75 million interest expense and $175 million 2025 adjusted EBITDA 2.3x interest expense.

MAGN: $156 million interest expense and $360 million 2025 adjusted EBITDA 2.3x interest expense.

Rayonier Advanced Materials is the most levered of the three, and with the most expensive debt. Magnera has the greatest uncertainty given they merged with a peer last November. So if you want the conservative choice of the three, it might appear at first glance to be Mativ Holdings.

But, the stock price of MATV hasn’t had the volatility that RYAM has had, there aren’t three chances to triple your money in the last five years.

Mativ Holdings (MATV) Stock Price:

That is an ugly stock chart, partially driven by the 2022 merger of equals which created Mativ out of SWM and Neenah. The market did not like that merger, apparently, and the stock price hasn’t had much relief since then.

Will Magnera suffer the same treatment? Will the market hate this merger for years ahead? Since the merger in November of 2024, the stock price of Magnera has only fallen, but at a 0.13x price to sales, how much lower can it fall?

I might be early on Rayonier Advanced Materials, and it might be the most levered shitco out of the three, but it has provided three amazing setups in the last five years, and it is poised to do it again. That’s the company that catches my eye, but the leverage, valuation, and insider sentiment is similar enough across all three companies.

RYAM current trades at a price to sales ratio of 0.16x. Back in the zero interest rate environment, the price to sales ratio reached as high as 1.0x, but now with interest rates higher, a 0.45x price to sales ratio is probably the right exit target. At a 0.45x price to sales, and a return to prior revenue peaks, RYAM would be an $880 million market cap company, not a $249 million market cap company. That’s room for a 3.5x, but I probably don’t have the timing to exit perfectly. I still expect it to fall a bit more, so this is a perfect stock for a watchlist, but then again, if the market starts to rally from here, the bottom could be in.

Rayonier Advanced Materials (RYAM) $3.74: Over $10 within the next 30 months