XP has updated its coverage of paper and pulp, upgrading Klabin and Irani from ‘neutral’ to ‘buy’ – with potential upsides of 33% and 26%, respectively – and naming Suzano as the top pick in the sector, with a potential upside of 55%.
Klabin’s units and Suzano’s shares closed up 1.6% and 1.2%, respectively; Irani remained stable.
Analysts Lucas Laghi, Guilherme Nippes, and Fernanda Urbano said that despite investors’ concern about the continued decline in pulp prices, they can see a stabilization of prices and even a more positive outlook ahead.
According to the brokerage, there is a solid outlook for both volume and prices of papers and packaging from next year.
Even with the expected increase in supply from large new projects intensifying production – such as Suzano’s Cerrado – XP sees a positive scenario.
“Considering future supply and demand conditions – which we expect to be tighter due to low land availability and/or high wood chip costs – we believe now is the time to increase exposure to the sector,” wrote the analysts.
For the analysts, Suzano is well-positioned to benefit from a potential inflection point in the pulp cycle, with a significant increase in cash flow after the acceleration of the Cerrado Project.
For XP, Suzano’s shares trade at an EV/EBITDA multiple of 5x for the next twelve months – “below what we consider a fair level of 6x and the historical 7x.”
Therefore, the brokerage decided to raise Suzano’s target price from R$ 73 to R$ 85.
Klabin, like Suzano, is also expected to benefit from the positive outlook for pulp prices and increased demand for paper and packaging businesses.
XP raised the target price of Klabin’s units from R$ 24.50 to R$ 27.
According to the analysts, the company is expected to reduce leverage and expand EBITDA in the coming years after acquiring forest assets from the Caetê project and accelerating other projects to increase efficiency in paper and packaging production.
As a result, the company’s leverage is expected to decrease from 4.1x this year to 3.5x in 2026. EBITDA is expected to increase from R$ 7.2 billion this year to R$ 8.7 billion in 2026.
“We see room for the valuation to remain at the 7x EV/EBITDA level and a possible change in leverage driving the potential for stock appreciation,” they wrote.
However, despite the upgrade, Irani was the only company whose target price was reduced – from R$ 12 to R$ 9.50. With the packaging manufacturer’s shares falling around 31% since January, XP believes a buying opportunity has emerged.
Future EV/EBITDA multiples for Irani are seen at around 5x, along with our projected EBITDA growth of 28% for the period between 2024 and 2026,” wrote the analysts.
Irani’s earnings are expected to come from a more favorable domestic demand for corrugated cardboard and the acceleration of the Gaia platform – a set of projects designed to bring more efficiency and productivity to Irani.
On the other hand, higher prices for recycled cardboard (OCC) are expected to impact the company’s margins.
Suzano’s shares have dropped by 4% in the last 12 months, and the company is valued at R$ 70 billion on B3.
Klabin has also lost 4% in the same period and is valued at R$ 25.5 billion.
Irani has seen a 37% decline, with a market cap of R$ 1.75 billion.
Source
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
