Suzano Papel & Celulose SA is poised to extend Brazil’s biggest rally on forecasts the pulpmaker’s earnings growth will outpace the industry as a weaker currency fuels an export boom.
The stock is likely to rise 18 percent in the next 12 months after surging 103 percent in the past year, according to 19 analysts surveyed by Bloomberg. Salvador, Brazil-based Suzano will post a sevenfold increase in earnings per share in 2014, the most among the world’s 50 most-valuable pulp and paper companies, the data show. That compares with estimated profit growth of 150 percent for Johannesburg-based Sappi Ltd.
“Pulp prices are more stable than most people thought they would be, and a weaker currency is a big help for an exporter,” Mathias Wagner, who helps manage 430 million reais ($188 million), including Suzano shares, as a partner at Sao Paulo-based Orbe Investimentos, said in a telephone interview.
The Brazilian real lost 10 percent against the dollar this year, the worst performance after Argentina’s peso and South Africa’s rand among emerging market currencies tracked by Bloomberg. Prices for pulp, the paper-making raw material, rose 3.8 percent as plant closures from Brazil to Norway scrapped 900,000 tons of production capacity.
Suzano’s profit is expected by analysts to increase as the company starts a pulp mill in Maranhao, Brazil, in the next quarter. Sales from the $2.9 billion plant will help the company lower debt, which is at a 10-year high, Alan Glezer, an analyst at Banco Bradesco SA, said in a telephone interview from Sao Paulo. He rates the stock the equivalent of buy.
“The new plant sits in a place that is two days closer to Europe than the existing one in Mucuri,” Glezer said. “It has more efficient logistics, pushing Suzano into a deleverage cycle that will be beneficial on many fronts.”
The Maranhao mill, along with two new plants in Latin America, will add about 8 percent to global capacity, which should put pressure on pulp prices, said Alvaro Marangoni, who helps manage 1 billion reais at Quadrante Investimentos Ltda.
He also said there is a risk of delay for the start of Suzano’s plant, which is still under construction.
“The risk of this plant not coming online in the fourth quarter is too high to be ignored,” Marangoni said in a telephone interview from Sao Paulo. “Valuations for Suzano are high and in the commodities sector I’d prefer to be more exposed to Vale,” referring to Rio de Janeiro-based Vale SA, the world’s largest iron-ore producer.
Suzano’s stock is rated a buy by nine analysts, eight say hold and two recommend selling it, data compiled by Bloomberg show. Suzano trades at 23.8 times estimated 2014 earnings, compared with a ratio of 6.1 for Vale and an average of 9.6 for the stocks on Brazil’s benchmark Ibovespa index, the data show.
Suzano has gained 14 percent in Sao Paulo this year, matching the advance of bigger competitor Fibria Celulose SA. Chile-based Empresas CMPC SA dropped 8.6 percent in Santiago. The Brazilian company’s stock fell 1 percent to 7.92 reais at 12:19 p.m. in Sao Paulo.
Suzano declined to comment in an e-mailed statement to Bloomberg News. The company is in the quiet period and is slated to report earnings Aug. 13 before market opens.
The pulp producer postponed plans to build the Piaui pulp mill and a project to produce wood pellets to be used to produce electricity as it focuses on cutting debt, Chief Executive Officer Walter Schalka said March 12 on an earnings conference call.
Earnings before interest, taxes, depreciation and amortization increased 40 percent to 327.3 million reais from January through March, the first three-month period with Schalka as head of Suzano.
“The new management seems to be committed to making operations more efficient, with a focus on cost cutting,” Orbe’s Wagner said. Orbe’s Value Master equity fund, in which Suzano is the fifth-biggest holding, gained 6.6 percent in the past year, beating 73 percent of its peers, according to data compiled by Bloomberg.
Even with the ramp-up of new plants, average pulp prices shouldn’t slump next year, as it takes time for new mills to reach full capacity, Bradesco’s Glezer said. He estimates that prices will drop to an average $750 a ton next year, from this year’s $775 a ton.
“Suzano has new capacity coming online amid a weak real that will boost shipments,” Glezer said. “They are well positioned to profit the most from this scenario.”