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Investing.com - Morgan Stanley (NYSE:MS) upgraded Befesa SA (XETRA:ETR:BFSA) from Equalweight to Overweight on Wednesday, raising its price target to EUR32.00 from EUR26.00.
The upgrade follows what Morgan Stanley described as "strong execution over the past few quarters" that provides confidence in earnings uplift delivery after an expectations reset in November. The firm noted that earnings revisions for Befesa have turned positive, with good visibility into 2025-26 performance.
Morgan Stanley highlighted Befesa’s extensive zinc hedging strategy, which covers 60-70% of its exposure at attractive price levels. The firm’s updated 2025-26 EBITDA forecasts now sit approximately 5% above consensus, with limited spot price downgrade risks due to constrained mine supply.
The investment bank emphasized Befesa’s robust cash generation potential, estimating cash needs for 2025-27 averaging around EUR160 million compared to mid-cycle EBITDA of approximately EUR280 million. This translates to a through-cycle free cash flow yield of about 11%.
Morgan Stanley expects this strong cash flow to enable rapid deleveraging toward Befesa’s target range of 2.0-2.5x by the second quarter of 2025, addressing a key investor concern. The firm considers Befesa’s base case 2025/26 free cash flow yield of 6%/12% compelling at more than double its Materials & Mining and Business Services peers.
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