On Tuesday, Citi adjusted its price target for Svenska Cellulosa Aktiebolaget SCA (SCAB:SS) (OTC: SVCBF) shares, reducing it to SEK157.00 from the previous SEK166.00, while sustaining a Neutral rating on the stock.
The adjustment follows a period where the company's shares experienced a decline leading up to the earnings report and dropped an additional 5% the day after the earnings were released due to a significant EBIT miss, limited information on forest transactions, and a relatively subdued outlook.
The report by Citi noted that while pulp pricing showed an increase in the third quarter, a subsequent change is expected to lag. The Renewable Energy sector of SCA is also underperforming, with the potential for a lower bio premium to negatively affect the business for multiple quarters ahead. Despite higher pulpwood prices benefiting the Forest segment, SCA's net short position could offset these gains.
The analysis pointed out that the Containerboard segment presents a positive aspect, with demand and pricing on the rise, albeit from a low base. The Obbola project is anticipated to speed up SCA's recovery. The Wood products sector is showing signs of stabilization, and a moderate improvement is expected; however, significant contributions would require lower rates.
Citi also addressed the opacity of forest valuation, stating that the lack of data and infrequent transactions could hinder consensus upgrades. The firm's stance remains neutral, anticipating that the slow forest market may continue. Additionally, it was highlighted that SCA's share performance is closely tied to pulp prices, which are predicted to decline for at least the next few quarters.
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