On Tuesday, JPMorgan issued an update on Svenska Cellulosa Aktiebolaget SCA (SCAB:SS) (OTC: SVCBF) shares, adjusting the company's price target to SEK135.00, a decrease from the previous SEK146.00. Despite this change, the firm maintained its Underweight rating on the stock.
The adjustment comes with an acknowledgment of SCA's high-quality assets and operations, which are considered among the best in the industry. However, the valuation, which stands at 12 times the projected 2025 EBITDA, poses challenges for justification according to the firm.
JPMorgan's report also noted that while SCA's forest assets might warrant a premium valuation compared to peers like UPM and Stora Enso (OTC:SEOAY), due to their significant contribution to the company's overall value and being low cost of capital assets, the market's valuation approach raises concerns.
The firm pointed out that the reaction to SCA's recent financial results, where a roughly 5% decline in forest valuations was revealed along with very thin transaction volumes, suggests that investors might be over-relying on the reported book value of SCA's forest assets in their assessments.
JPMorgan concluded that the book value of SCA's forest assets is likely overstated. After making adjustments to reflect what the firm believes to be the fair value of these assets, they arrived at a target price that falls below the current market price of SCA's shares.
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