UBS Negative on Pulp & Paper

After equity outperformance, UBS Pactual is negative on pulp and paper and has downgraded VCP and Aracruz to sell from neutral, Suzano to neutral from buy, and predicts asset sales. It also maintains a sell rating on Klabin. The cut comes after VCP and Aracruz’ stock soared more than 60% from recent lows and after Suzano equity gained 40% from recent lows. “Short-term, the companies will struggle with inadequate capital structures. We believe asset sales could be considered, and see room for equity issues as well,” the shop says. “We believe Brazilian pulp and paper stocks are on average over-leveraged, and we see them generating very little free cashflow in 2009 to allow deleveraging. Valuation multiples also remain high, and we believe the sector is unattractive on value or growth metrics,” it adds. UBS’ price target for VCP is BRL12.00, BRL14.00 for Suzano, BRL1.70 for Aracruz and BRL2.85 for Klabin. April 16, VCP closed at BRL15.25, Suzano at BRL13.85, Aracruz at BRL2.17 and Klabin at BRL1.79.