The action of Suzano has already fallen 13% since the news that the company approached International Paper for an acquisition worth US$15 billion – more than 100% of Suzano’s market value on the day the negotiations leaked.
But for BTG Pactual, this de-rating is difficult to justify. The bank estimates that Suzano’s enterprise value is undervalued by R$40 billion, which is the difference between the current EV and the fair EV of the company for 2025.
“We believe that the management deserves the benefit of the doubt, considering its excellent track record in M&A and value creation – and the fact that Suzano is now the cheapest stock in the sector makes little sense,” wrote analysts Leonardo Correa and Caio Greiner.
According to them, the stock was already cheap because investors have not yet factored in the gains from the Cerrado project, which goes into operation this year and will increase Suzano’s short fiber pulp production capacity by 25% – the product that generates 90% of Suzano’s EBITDA.
For BTG, Cerrado should add R$12 to the fair price of the company’s stock, or R$15 billion in market cap.
According to the analysts, Suzano currently trades at the lowest EV/EBITDA multiple in the sector: 4.8x.
For comparison, Klabin trades at 7.5x, International Paper itself at 7x, Stora Enso at 8x, Smurfit at 6.7x, while Chilean companies trade on average at 6.7x.
But the analysts see few short-term triggers for the stock and say the current outlook “seems somewhat binary and symmetrical” with a potential for upside or loss between 10% to 15%.
The main trigger would be the resolution of the acquisition of International Paper, for which the bank has outlined two scenarios.
The first would be a lack of agreement, which would lead the stock to gradually recover and return to having only the price of pulp and exchange rate as the main variables.
On the other hand, the second scenario would be the acquisition of International Paper for over US$42 per share, which could bring additional losses to Suzano until the market has more visibility on the potential synergies and deleveraging.
Even so, BTG has maintained its ‘buy’ recommendation for the stock with a target price of R$82 – a potential upside of 59%.
Suzano’s shares are up 13.8% in the last twelve months.
The company is valued at R$67 billion on B3.
