On Wednesday, Barclays (LON:BARC) initiated coverage on Valmet Oyj (VALMT:FH) (OTC: VOYJF), a global developer and supplier of technologies, automation, and services for the pulp, paper, and energy industries. The firm assigned an Underweight rating to the stock, along with a price target of €19.00. The new price target indicates a potential downside of approximately 30% from the company's current market valuation.
The coverage by Barclays suggests that Valmet's shares may face downward pressure due to several factors. The analyst pointed out a roughly 45% downside to the company's projected 2025E Process EBITA (earnings before interest, taxes, and amortization). Additionally, concerns were raised regarding the impact of finished goods inventory on the margins of Valmet's 'Stable' business segment, which includes Service & Automation.
Another factor contributing to the Underweight rating is Valmet's balance sheet, which the analyst believes is more leveraged than appreciated, with potential stress points that could affect the company's financial stability. While key end-markets for Valmet's products have likely reached their lowest point in terms of utilization and pricing, the analyst does not anticipate significant orders for the company in 2024. This forecast is based on the recent capital expenditure cycle and the risk of oversupply in certain geographies and end-markets that Valmet serves.
The analyst's comments reflect caution regarding Valmet's near-term prospects, despite the stabilization of end-markets. The firm's analysis suggests that while the worst may be over for the industry's demand and pricing, the overall market conditions may not translate into a robust order book for Valmet in the immediate future.
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