On Thursday, Citi revised its stance on UPM-Kymmene OYJ, listed on the Helsinki Stock Exchange as UPM:FH and over-the-counter as UPMKY, moving its rating from Buy to Neutral. The firm also adjusted the price target for the company's shares, setting it at €32.00, a decrease from the previous target of €42.00.
The revision in rating and price target by Citi comes after a reassessment of UPM-Kymmene's earnings potential for 2024. The firm forecasts a significant reduction of 22% in the company's earnings per share (EPS) for the year. This downward adjustment is attributed to expected lower earnings before interest and tax (EBIT) in the first half of 2024, due to scheduled maintenance at three of UPM's pulp mills and all three of its Olkiluoto (OL) nuclear units.
Furthermore, Citi has delayed its projections for the ramp-up of UPM's Paso de los Toros (PdlT) project. While there is an anticipation of higher EBIT in the Papers segments which could partially offset the lower earnings, the firm believes that the market has not fully recognized the positive impact of the PdlT project. Citi's analysts hold a view that is more optimistic than the consensus for the company's 2025 Fibres EBIT.
"Estimates are unlikely to change materially until the group can display the profits of an uninterrupted quarter of full production," said Citi.
The revised price target of €32.00 is based on an expected 10.3 times the 2024 enterprise value to EBITDA (EV/EBITDA) ratio.
InvestingPro Insights
As investors digest the recent rating change from Citi for UPM-Kymmene OYJ, it is crucial to consider the company's financial health and market performance. With a market capitalization of $16.49 billion and a price-to-earnings (P/E) ratio of 27.98 for the last twelve months as of Q4 2023, UPM presents a mixed picture. The P/E ratio suggests a relatively high valuation, which aligns with one of the InvestingPro Tips indicating that UPM is trading at a high earnings multiple.
On the dividend front, UPM boasts a strong history of dividend payments, with a dividend yield of 5.09% as of the latest data, and has maintained these payments for 28 consecutive years. This consistency in returning value to shareholders is noteworthy, especially when considering the company's significant dividend growth of 15.38% in the last twelve months. Additionally, the company's stock is characterized by low price volatility, another InvestingPro Tip that might appeal to investors seeking stability.
However, the company's revenue has seen a decline of 10.75% over the last twelve months, and more concerning is the quarterly revenue growth rate, which dropped by 21.67% in Q4 2023. This decrease in revenue growth could be a factor contributing to Citi's reassessment of UPM's earnings potential for 2024.
Prospective investors and current shareholders looking to delve deeper into UPM-Kymmene's financials and stock performance can find additional insights and tips on InvestingPro. There are 12 more InvestingPro Tips available, providing a comprehensive analysis of the company's financial health. Use coupon code "SFY24" to get an additional 10% off a 2-year InvestingPro+ subscription, or "SFY241" to get an additional 10% off a 1-year InvestingPro+ subscription, to access these valuable insights.
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