CMPC. Target Price Update

Transcription

1 CMPC Target Price: CLP 2,350 Recommendation: Buy Risk: Medium 2012-May-08 Sector: Forestry Target Price Update Analyst: Vicente Meschi Target Price Update Investment Thesis We have revised our target price for CMPC to CLP 2,350 for 2012, with a Buy recommendation and Medium risk profile. Our revision takes into account the recovery in pulp and paper prices during the first quarter of the year. Despite projections for considerable production capacity coming into operation between 2012 and 2016, the positive economic outlook for developing markets given by the IMF suggests that demand for pulp will keep pace with supply, maintaining price at attractive levels for efficient producers. Our analysis includes CMPC s investment in Brazil in the Guaíba II plant, which we expect will come into operation in the second half of 2015 after delays announced in April We also expect the tissue business to consolidate and expand margins after successfully expanding in several Latin American markets. Latin America s competitive advantages in pulp production are being used by forestry companies through eight large projects, seven of them in Brazil. The increase in production will mean that Latin America will produce over 35% of the world s supply circa 2015, from 29% in CMPC s investments will allow it to maintain its cost advantage with respect to its northern hemisphere competitors. Assumptions Economic problems in the world, especially those in Europe, and China s slowdown will certainly affect pulp price recovery over the medium term. Other regions, however, will grow enough to offset these effects. These facts support an assumption of slowly rising prices during We have estimated a long term price for NBSK pulp (FOEXNBSK Index in Bloomberg) of 875 USD/ton, an increase of 2.9% over its current price of 851 USD/ton. This would translate into a selling price of 787 USD/ton for CMPC s pulp, a discount of 88 USD/ton compared to the European index. For the Tissue business, we estimate that the EBITDA margin will stabilize at 15.0% by the end of 2014, a 2.1% increase over current margins. For the paper and forestry businesses, we expect margins to return to historic levels. The pulp business will remain CMPC s main source of profits, generating over 50% of the company s EBITDA. The Guaíba II project will maintain this situation in the foreseeable future, making the company highly exposed to the pulp price cycle, more so than competitors such as Copec, which has investments in unrelated businesses. Tissue projects throughout Latin America will tend to diminish this effect but we do not expect a significant change in CMPC s EBITDA composition. On the liabilities side, we see a positive signal the recent bond issuance for USD 500 million at an effective rate of 4.83%. With this issuance we expect that CMPC will not require large additional cash injections to finance its CapEx requirements until CMPC s rising leverage, on the other hand, leads us to assume that the company will not engage in significant M&A action or other cash intensive investments in the valuation horizon.

2 Valuation To arrive at a price for CMPC we used a discounted cash flow (DCF) model. The discount rate used was 9.1% nominal return in USD, calculated using a β of 1.19 and considering the recent bond issuance in the US. The long term growth of the company was estimated at a conservative 1.0%. The target price implies an 18.4% increase over the current price of the stock and a total return of 19.8% after taking projected 2012 dividends into account. Although this return is above expected IPSA Index returns for the year, a major risk exists if pulp prices fall. Pulp prices will remain a key variable when determining CMPC s value. In the last 12 months, they have followed an unstable path, totaling a 15.1% fall. Investments Forestry Acquisition of land to expand forestry base. Plywood: 240 th.m 3 /year plant scheduled to begin operations in Pulp Laja: BSKP capacity expansion of 110 th.tons./year scheduled for 2Q Guaíba 2: New plant with 1,300 th.tons./year capacity of BEKP pulp, scheduled for Tissue Increase production capacity in Chile in 50 th. tons./year. Paper Products Paper plant in Guadalajara scheduled to begin operations in Other Projects New cogenerator will increase energy production in Chile by 1,000 GWh, making operations 75% energy independent. CMPC Target Price Update Vicente Meschi 2012 / May / 8 2

3 dic/09 feb/10 mar/10 may/10 jun/10 ago/10 sep/10 nov/10 dic/10 feb/11 mar/11 may/11 jun/11 ago/11 sep/11 nov/11 dic/11 feb/12 mar/12 CMPC Target Price: Recommendation: Buy Sector Pulp&Paper Date 2012 May 09 Price (CLP/share) Shareholders: Var. % Price YTD 2,9% Matte Family 55,4% Sh. Outstanding (mn) Var. % Ipsa YTD 8,8% Free float 44,6% Market Cap (USDmn) week range (CLP) Av. Daily volume (USD mn) 6,4 ADR n/a Market price Ebitda Breakdown (12 months) Valuation e IPSA CMPC Description Strengths Weaknesses One of the main forestry companies in Latin America Five business areas: forestry, tissue, pulp, papers and paper products. Pulp production in Chile, Brazil & Argentina Tissue production in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru & Uruguay. Ebitda : USD 986 mn Pulp 46% EPS (CLP) P/ E 18,1 16,7 22,5 EV / EBITDA (x) 12,4 9,8 14,2 P/ BV (x) 1,5 1,1 1,3 Dividend Yield 1,2% 1,7% 1,4% ROA 5,6% 4,8% 3,0% ROE 9,1% 8,2% 5,2% EVA e 2013e 2014e Balance Sheet (USDm) mar-12 Operating Data Cash and equivalents 367 Pulp sales (th. tons) Current assets NBSK (USD/ton) Fixed assets CMPC pulp price (USD/ton) Total assets Tissue sales (th. tons) Current liabilities Tissue price (USD/ton) Long term liabilities Equity Income statement (USD mm) Debt mar-12 Revenues Total debt (USD mm) Var (%) 13,7% 1,2% 4,4% 3,2% Debt / Equity (x) 0,7 Operating Income EBITDA / Interest (x) 5,9 EBITDA Net financial debt / EBITDA (x) 3,0 Var (%) -5,2% -10,1% 11,5% 2,9% Peers (2012e) EV / Net financial expenses (135) (163) (169) (170) (170) P/E EBITDA Net income Copec 23,6 13,5 Var (%) -22,7% -3,8% 11,4% 3,9% Fibria - 8,0 Margins Suzano 44,4 7,9 Operating 19,2% 16,2% 13,8% 15,3% 15,3% International Paper 13,0 6,9 Ebitda 27,0% 22,5% 20,0% 21,3% 21,3% Klabin 12,9 7,9 Net 15,2% 10,3% 9,8% 10,5% 10,5% Kimberly Clark Méx. 20,4 10,9 Source: CorpResearch, Bloomberg, Company financial statements. Paper 17% Tissue 19% Paper products Forestry 3% 15% Low cost advantage due to rapid forest growth in Chile and Brazil. Integrated producer from raw material to consumer goods. Investments in Brazil -pulp and tissue- with important growth potential and low costs. Important investment plan in pulp & tissue. Second largest tissue producer in LatAm. High exposure to the pulp price that is in the upper part of the cycle. Continuous investments due to environmental requirements Foreign exchange rate exposure due to sales in dollars Exposure to countries with higher macroeconomic risk than Chile CMPC Target Price Update Vicente Meschi 2012 / May / 8 3

4 Glossary Term Definition / Translation Calculation EBITDA Earnings Before Interests, Taxes, Depreciation and Amortization Operational Income plus Depreciation and Amortization EBITDAR Earnings Before Interests, Taxes, Depreciation, Amortization and Rents Operational Income plus Depreciation and Amortization plus rent of fixed assets. It is used the at transport industries to reverse the rent of airplanes or ships. EV Enterprise Value Market capitalization plus Net Financial Debt plus EV/EBITDA Valuation multiple. While greater it is, more expensive it is the stock Minority Interest EV divided by Ebitda FCF Free Cash Flow Operational Income plus Depreciation and Amortization minus tax minus capital expenditures plus (minus) working capital variation. Free-float Percentage of stocks that can be freely traded in the market Percentage of stock that does not belong to controller s shareholders. Margin Operational Ebitda Net Percentage of sales Operational Income / Revenue Ebitda / Revenue Net Income / Revenue P/E Price / Earnings Market Price divided by EPS P/B Price to Book value ratio Market price divided by the accounting value of the stock. Dividend Yield The return in terms of dividends of investing in equities Dividends distributed in a year divided by the market price. FCF yield Free Cash Flow Return. FCF / Market Price ROA Return on Assets Net Income / Total Assets ROE Return on Equity Net Income / Accounting capitalization EPS Earnings Per Share Net Income / Shares outstanding YtD Year to Date Percentage variation year to date x Times Stocks recommendations are established according to the stock yield relative to the IPSA Index. We recommend Hold when we expect the share to have a yield in line with the IPSA; Buy, when the yield expected for the share is above to that expected for the IPSA; and Sell, when the yield expected for the share is below to that expected for the IPSA. We define a yield to be In line with the IPSA when it is within a range whose scope is equivalent to a third of the variation expected for the index, with a 5% minimum. CMPC Target Price Update Vicente Meschi 2012 / May / 8 4

5 CorpResearch Álvaro Donoso Director CorpResearch Economic Research Sebastián Cerda Executive Director CorpResearch & Economic Studies Nicolás Birkner Economic Analyst Natalie Charles Investment Analyst Juan Ortiz Economic Analyst Equities Research Cristobal Lyon Director of Strategies Vicente Meschi Senior Analyst. Sectors: Banking, Forestry Pedro Letelier Analyst. Sectors: Transport, Food & Beverages Andrea Puebla Analyst. Sector: Retail Rosario Norte 660, 17 th floor, Las Condes, Santiago. T: CMPC Target Price Update Vicente Meschi 2012 / May / 8 5