Investing.com – After news surfaced that Suzano Papel e Celulose SA (BVMF:SUZB3) was eyeing a potential business combination with International Paper (NYSE:IP), although the company denied any decision, Itaú BBA pointed out that such a deal would be strategically positive, but cautioned that investors see excessive payment as the main risk. Media reports, including from Reuters, indicated an offer of $15 billion, according to their sources.
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"A potential deal with IP would be aligned with Suzano’s recent speech, as the company has been vocal about considering M&A expansions in the paper business in North America and Europe as potential growth avenues," reinforce analysts Daniel Sasson, Marcelo Furlan Palhares, Edgard Pinto de Souza, and Barbara Soares, in a report released to clients and the market.
In the document, the analysts list three strategic positives, including result diversification, considering that the paper and packaging divisions could represent around 45% of consolidated EBITDA volume, compared to the current 15%. Additionally, the bank mentions typically higher multiples for paper and packaging companies compared to pure pulp players, which could lead to a revaluation of the company in the future, as well as less exposure to the Chinese economy.
Nevertheless, the analysts point out that investors see excessive payment as the main risk, and limitations in synergies, as the assets would not overlap. With the indicated price in the news, the net debt/EBITDA ratio for the new company would range between 4-4.5x, "which could pressure Suzano’s equity value if the market does not attribute a higher multiple for the company," adds Itaú BBA.
The analysts' estimates for the combination point to a considered giant EBITDA between $7 billion to $7.5 billion, and a value around $44 billion, implying an EV/EBITDA in 2024 and 2025 close to 6.0x, which the bank considers attractive.
"If the market attributes a 6.5x multiple as “fair” (which we think is low), we see ~50% upside from current prices. That said, we acknowledge that the deleveraging story post-Cerrado would then be postponed," concludes the bank, which has an outperform recommendation, equivalent to a buy, with a target price of R$75.
Suzano denies formalizing an offer
Meanwhile, Suzano has stated that there is no formal document or binding agreement regarding a possible business combination with International Paper. However, it stated that it "is continuously analyzing market opportunities and investments aligned with its strategy."
Suzano on InvestingPro
Suzano operates with a significant debt burden, and analysts expect lower profits this year, according to InvestingPro, Investing.com's premium platform. However, the Protips, AI-driven insights based on fundamental indicators, indicate that management has been aggressively buying back shares, and the company is traded at a low earnings multiple.
The financial health of Suzano is considered to be performing well, with a score of four, on a metric ranging from one to five.
The fair price of the company is evaluated at R$69.23, with a potential upside of 31.9%, according to 13 investment models. The target set by 15 analysts is slightly more pessimistic, at R$68.59.
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