On Friday, Citi updated its financial outlook for Vidrala (LON:0NV7) SA (VID:SM) stock, a manufacturer and distributor of glass containers. The firm's analyst raised the price target to €103.00 from the previous €98.00. Despite the increase, the analyst maintained a Neutral rating.
The adjustment comes after Vidrala's shares experienced a positive response following a performance that exceeded expectations. The analyst noted that this might be partially due to market positioning, as sentiment towards the glass industry has been bearish in recent times. While organic volume growth is showing signs of recovery, it is at a very slow pace. Consequently, Citi has revised its fourth-quarter volume growth assumptions downward, expecting a more gradual recovery.
The analyst also addressed pricing concerns, suggesting that year-over-year pricing could continue to be negative for at least a few more quarters. However, the forecast for fourth-quarter price growth is less negative than before, aligning with the company's guidance of a 9M24 year-over-year decrease of 8%, which is indicative of the full year 2024.
Looking ahead to the 2024 EBITDA guidance, which suggests a figure greater than €450 million, the analyst expressed skepticism. To meet this target, Vidrala would need to achieve a 44% year-over-year increase in EBITDA for the fourth quarter or maintain the same level as the previous quarter. Historically, the company's fourth-quarter EBITDA has tended to decrease quarter-over-quarter in four of the past five years.
In summary, Citi's stance reflects a cautious optimism towards Vidrala's financial recovery, acknowledging the company's slow but positive volume growth and slightly improved pricing outlook for the fourth quarter. However, the firm also highlights the challenges Vidrala faces, such as near-full capacity utilization, the absence of growth projects, negative pricing trends, and the stock's high valuation multiple. As a result, Citi suggests that the potential for significant stock appreciation may be limited and indicates a preference for seeking recovery opportunities in other areas of the market.
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