UPM (Buy, TP: EUR47.00) - Earnings growth is on
Our revised 2024–2025 forecasts remain significantly above consensus, and with much higher Chinese pulp prices benefiting UPM’s growing pulp business, signs the inventory-adjustment phase for other key industries is about to ease, and lower opex, we believe the Q4 report will trigger meaningful consensus increases. UPM remains our top pick in the forestry space, as we like the valuation and company-specific earnings growth. We reiterate our BUY and EUR47 target price.Solid momentum for Q4e. With continued rising pulp prices, incremental volumes from the new 2.1Mt pulp mill in Uruguay, and more normal business conditions for the other industries, we see much stronger earnings ahead, which we believe management will indicate in the Q4 report (due at 08:30–09:00 CET on 1 February). We forecast relatively strong Q4 EBITDA of cEUR550m.
We are significantly above consensus. Primarily due to FX, we have made small reductions to our optimistic scenario that still looks for strong earnings growth over the coming quarters due to higher pulp prices benefiting UPM’s growing pulp business as well as greater volumes and easing costs for other key industries. Thanks to the new pulp mill, we assume c1.5Mt higher pulp volumes for 2024e versus 2023e.
BUY and EUR47 target price reiterated. UPM remains our sector top pick, offering a growth profile in its diverse industries due to years of ambitious investments that we do not see reflected in its valuation. It also enjoys good availability of relatively low-cost wood fibre. Thus, in contrast to many of its peers, we believe UPM’s long-term opex outlook is under good control in most scenarios. Besides impressive earnings growth, we see plenty of value in UPM from its competitive industries and real assets in forest land and power production (hydro and nuclear). Our unchanged SOTP is cEUR62/share, of which the Pulp division accounts for EUR28/share.
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.
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