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Sappi Limited 09 July 2008

Update Report – 2Q 08 Results

Sappi’s Fine Paper segment to drive future growth

ADR HOLD Direct access

Fundamental to indicates
research the fullan report
8% upsidefree
in theofADRcharge at 6-12 months. We have
over the next
calculated the target price based on fundamental factors, using a weighted average of target prices
http://www.iirgroup.com/researchoracle/viewreport/
obtained using DCF and comparative valuation methodologies.

Ticker: SPP show/20262

Target price: US$12.51
Current price: US$11.54 We reiterate the ADR rating for Sappi Limited (Sappi) a HOLD, with a 6-12 month target price of
US$12.51.

South SELL The South African stock is expected to depreciate approximately 36% over the next 6-12 months as
the 8 percentage point fundamental upside is offset by an approximately 44 percentage points
African downside attributable purely to the anticipated depreciation of the US dollar against the South African
rand. As we now expect a significant negative currency impact on the South African stock over the
Stock medium term we are taking a 6-12 months investment horizon to value this stock1.
Ticker: SAPJ.J
Target price: 5,630c
Current price: 8,820c We reiterate the South African stock (1 ADR = 1 South African Stock) a SELL with a 6-12 month target
price of 5,630c.

Supervisor: Meera Patil

Analyst: Sujit Agrawal
Editor: Matthew Bridle
Global Research Director:
Satish Betadpur, CFA
Next news due:
3Q 08 Results, 31st July 2008
Investment horizon – short term actionable trading strategies
This report addresses the needs of strategic investors with a long-term investment horizon of 6-12 months. If
this report is provided to you by your broker under the Global Settlement, you may now also access (free of
charge) the short-term trading outlook that we publish from time to time for this issuer, looking at the coming
5-30 days for readers with a shorter trading horizon. These are available on-line only at
www.researchoracle.com

Report summary
Sappi Limited’s (Sappi) 2Q 08 revenues and earnings were both above our expectations. A strong
revenue performance was driven by robust y-o-y growth witnessed within Sappi’s Fine Paper segment,
while its Forest Products business grew only marginally y-o-y during the quarter. Considering its higher
than expected performance, our anticipation of a healthy growth in volumes in its European operations
and price improvement in its North American business, we have revised our estimates upwards. We
expect Sappi's Fine paper business to benefit from sustained demand for WIP rolls in North America
and an expansion in production volumes across all of the segment’s geographies. We also expect
moderate growth in its Forest business as improvements in its price realization are likely to be offset
by a decline in pulp and paper volumes. However, based on current price levels, we hold a neutral
outlook for the Sappi's ADR over our investment horizon.

Currency impact for non-US investors

The impact by itself of the anticipated currency movements on the South African stock (now 8,820c),
without considering changes in the share price, is negative and is expected to be:

Over 6 months: 6,059c

Page 1 Refer to page 4 for all footnotes