Re: Ence (ENC) ¿Qué está pasando?
Hold/TP:€1.95/CP:€1.61
Recommendation upgraded to Hold from Underweight. After a strong underperformance, there is now 20% upside potential from our target price. We would not become buyers yet, as we see two headwinds: a scenario of declining pulp prices in 2015 and substantial execution risks in the achievement of the "competitiveness plan", impacting earnings from 2016E at best. Besides, we need to see more evidence that management is more focused on cash preservation in a period of balance sheet deterioration.
3Q14 Results due out on November 3rd. We expect sales of €186mn (-11% YoY), clean EBITDA of €15.2mn (-60% YoY), and a reported EBITDA loss of €19.8mn (including €35mn of Huelva shutdown costs). We expect a clean EBIT loss of €9.8mn and a reported EBIT loss of €210mn (including €165mn of asset impairments resulting from the permanent shutdown of the Huelva pulp mill). We should expect net debt to expand QoQ (€318mn forecast for year-end).
Huelva mill shutdown, a major step towards a return to profitability. Ence finally shut down the pulp mill on October 19th, as previously announced. The company will be able to remove annual EBITDA losses of €25mn and could generate ~€15mn on the biomass cogeneration plant being maintained. Pending the final details of the cost of the closure, we estimate a €35mn charge in 4Q14.
September global pulp statistics showed 2 days reduction to 32 days, inventories now below historical average (35 days). Producers are getting in November part of the US$25/t increase announced last month regaining short term momentum.
We remain cautious on 2015 fundamentals, mostly discounted in the stock price. We maintain our estimates of a 4% YoY decline in pulp prices on oversupply concerns. However, we have increased our 2015E/2016E EBITDA by 4% to reflect the impact of a better US$/€ after updating our assumptions. This has led to a 2% change in our TP to €1.95/share.
