2023-07-27 15:17:43
BTG reiterated its ‘buy’ recommendation on Irani and raised the price target for the share – even following the pulp and paper maker has doubled in value since its re-IPO in 2020.
The bank raised the target price from BRL 11 to BRL 14, a upside 42% potential compared to screen price. The action operates practically stable this morning, with an increase of 0.8%, at R$ 9.80.
For analysts Caio Greiner and Leonardo Correa, the market is already pricing the turn of the cycle in the corrugated cardboard market, but the company’s expansion project, called GAIA, has not yet been priced.
GAIA includes a series of initiatives — capacity expansion, industrial automation and the purchase of new equipment, for example — that should lead to a relevant increase in the company’s production and profitability.
By BTG’s calculations, the GAIA project might represent 25% to 30% of Irani’s EBITDA in 2026, when it is completed — adding R$150 million to EBITDA and expanding the margin by 5-6 percentage points.
“We calculate that the project might be worth R$2.5 to R$3 per share, which investors are still pricing as an NPV [net present value] negative,” the analysts wrote.
According to them, the market is pricing that the project will have a high demand for capexwith a very small contribution to EBITDA — a view BTG disagrees with.
BTG also highlighted the favorable dynamics of the pulp and paper market. In recent years, paper packaging consumption has accelerated, driven by secular trends such as e-commerce penetration growth and plastic substitution, as well as GDP growth.
“Over the same period, capacity addition grew less than demand, leading to a tight supply and demand environment in the industry,” says the report.
“We expect profitability to remain high going forward, as we see Irani able to raise prices in line with inflation due to this tight market dynamics.”
In the report, BTG raised its estimate for the company’s EBITDA in the coming years by 10%.
Irani is trading at 6.4x its estimated profit for this year. The company is worth BRL 2.5 billion on B3.
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