UPM (Buy, TP: EUR45.00) - Electrifying earnings prospects
We are above consensus for 2022–2023e, as we believe UPM’s unique integrated business model gives it good control of input prices, and forecast strong pricing power in its growing pulp business. We also believe UPM will reap significant benefits from selling excess electricity (6TWh) in the grid in Finland in 2023. Mainly due to higher pulp price assumptions, we have raised our EBIT for 2022e by 9% and 2023e by 5%. We have increased our target price to EUR45 (44) and reiterate our BUY. Our top pick in the forestry space. In our view, UPM has the best track record and growth profile in the industry, which is not reflected in its valuation. Due to its three transformational projects, Paso de Los Toro Pulp (pulp), OL3 (nuclear power) and Leuna (biochemicals), we estimate an annual EBIT increase of cEUR1,000m over 2023–2024e despite our pulp price scenario, which includes 25-30% lower prices than Q3. Our 2023–2024 estimates translate into EV/ EBIT of c7–6x. A unique (green) earnings growth story. Mainly due to higher pulp price assumptions, we have raised our EBIT for 2022 by 9% and for 2023e by 5%. We forecast EBIT of EUR2bn in 2022 and EUR2.5bn in 2023, well above Bloomberg consensus of EUR1.6bn and EUR1.8bn, respectively. For Q3, we estimate record EBIT of EUR733m. In conjunction with the Q3 results, we also expect management to confirm that the Paso de Los Toro Pulp mill is set to start production in Q1 2023 and OL3 should move to full production in December (4TWh power net UPM). 50% potential upside to our SOTP of EUR52/share. We see ample potential value in the asset portfolio from becoming increasingly ‘green’. Our SOTP indicates a value of EUR52/share. Given the energy crisis in Europe, we consider our electricity price assumptions of EUR70/MWh skewed to the upside. Based on a long-term electricity price of cEUR70/MWh, we value the energy business at EUR13/share. BUY reiterated and target price raised to EUR45. UPM is significantly long its own electricity and has good availability of relatively low-cost fibres (total opex for 2022–2023e seems under control while overall pricing power should also remain very healthy).UPM-Kymmene is a global paper and forest products group, mainly engaged in the production of paper, with an emphasis on the manufacture and sale of printing and writing papers. Co.'s operations comprise of these segments: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Paper Asia, UPM Paper ENA, UPM Plywood and Other. UPM Biocomposites, UPM Biochemicals business units and Group services are reported in Other operations. Co.'s activities are centred in European Union countries, North and South America and Asia with production plants in 13 countries.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.