UPM (Hold, TP: EUR30.00) - Robust margins despite headwinds
Weaker demand and pricing in several end-markets was evident in the Q3 results, but good cost performance, record pulp production, and the profitability turnaround in Specialty Papers drove a 4% EBIT beat despite a 3% miss on revenues. Achieved pulp prices collapsed by 16% QOQ, and the Q4 guidance is for further weakening. The cost benefit of lower pulp prices looks increasingly difficult to fully retain as paper demand continues its accelerated decline. We reiterate our HOLD, but have raised our target price to EUR30 (28.5).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.
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