ENCE: EXPECTING RECOVERY IN PAPER PULP PRICES (ANÃLISIS BANCO SABADELL)
Expecting recovery in pulp prices. BUY.Following the poor performance of hardwood pulp prices in Europe over the past few months (-31% in 2019 and -27% since our last update on 17/05), we cut our estimates (-49% in EBITDA’19e and -14% in 2023e) and our T.P. to € 4.42/sh. (-13% vs. previous; 6.9x EV/EBITDA’21e / 13.2x P/E’21e), meaning +21% upside, and thus we maintain our BUY recommendation (although we do not rule out short-term volatility). This is based on the expected recovery of pulp prices in Europe in 2020 and in the long term thanks to demand growing more than supply, although the regularisation of stocks will slow recovery. ENC has fallen -45% vs. the IBEX 35 YTD.
Ence Energia Y Celulosa is engaged in the manufacture and commercialization of wood pulp and derivatives. Co. divides its activities into the following two business lines: Forest Division: Co. manages timberlands in South America and the Iberian Peninsula. Co. is involved in trading of wood, and supplies solid wood products including: plywood, sawn timber, parquet flooring and glued-edge paneling. Co. is involved in forest and environmental consulting. Pulp Division and Energy Production: Co. is engaged in the production of Eucalyptus globulus-based TCF and ECF paper pulp. Co. is also involved in the generation of electricity through biomass power producing plants.
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