Bank of America remains selective in its outlook on stocks in the European forestry sector.
The investment house favors shares such as Stora Enso (Buy), Smurfit Westrock (Buy), and SIG Group (Buy).
Bank of America assesses that all paper and packaging grades are under pressure within the upstream segment, but pulp appears to be facing a structural shift – an oversupply in China.
"In our view, this will dampen the market recovery over the coming year. We avoid companies with greater exposure to pulp (Underperform: UPM, SAP, Neutral: SCA)," writes Bank of America.
The firm has made a number of target price adjustments within the sector, including for SCA, which has had its target price lowered to 121 kronor from 141 kronor, while UPM is reduced to 19 euros from 21 euros.
The target price for Stora Enso remains unchanged at 12 euros.
In the downstream segment (corrugated raw materials, cartonboard, among others), the outlook is more mixed. However, if and when demand returns, there is at least a path back to a balanced market, according to the investment house.
Stora Enso Oyj is a Finland-based provider of renewable solutions in packaging, biomaterials, wooden construction and paper industries. The Company has six divisions: the Packaging Materials division provides renewable packaging materials based on both virgin and recycled fiber, the Packaging Solutions division develops and sells premium fiber-based packaging products and services; the Biomaterials division offers a variety of pulp grades to the paper, board, tissue, textile and hygiene product producers; the Wood Products division is a sawn wood producer and a provider of wood-based solutions to the construction industry; the Forest division manages Stora Enso’s forest assets in Sweden and is responsible for wood sourcing for Stora Enso’s Nordic, Baltic and Russian operations and the Paper division, that provides paper products made from recycled and virgin fiber. Stora Enso Oyj operates worldwide.
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