Jefferies downgrades Ence to “hold” on weaker pulp outlook, cuts PT to €3.35

Investing.com -- Jefferies has downgraded Ence Energía y Celulosa (BCBA:CELUm) SA to “hold” from “buy” and reduced its price target by 10% to €3.35 from €3.70, citing prolonged weakness in pulp pricing and lack of near-term catalysts, in a note dated Friday. 

The downgrade follows the underperformance of pulp markets, delayed recovery timelines, and headwinds from foreign exchange rates, specifically a weaker U.S. dollar against the euro.

The brokerage had previously upgraded Ence in November 2024 based on expectations for rising pulp prices and growth from its renewable energy division. Those assumptions have since been revised.

Jefferies now forecasts 2025 EBITDA at €131 million, a 25% reduction from the prior estimate of €175 million and 18% below the €159 million FactSet consensus. 

The 2026 EBITDA forecast is cut 28% to €166 million, which is 13% below consensus. Jefferies notes that every $50/ton change in pulp pricing equates to about €40 million, or roughly 25%, of group EBITDA in 2026.

Following a brief rally in early 2025, pulp prices reversed course by April due to global demand softness, trade uncertainties, and poor investor sentiment in EU-listed pulp stocks. 

Jefferies projects EU hardwood pulp prices bottoming at $570/ton in Q3 2025, compared to $500/ton in China. 

No recovery is expected in the seasonally weak third quarter, though a modest rebound is forecast from Q4 into 2026.

Ence’s pulp division valuation has been lowered to €2.55 per share from over €2.85, based on a reduced EV/EBITDA multiple of 6.2x and revised mid-cycle EBITDA assumption of €150–160 million. 

The energy division valuation was trimmed slightly to €0.80 per share from €0.85, using a 9.5x multiple. 

The new sum-of-the-parts valuation excludes any upside from growth projects in biomethane or industrial heating.

Group revenue is forecast to decline 9% to €794 million in 2025, with pulp revenue expected to fall to €594 million. Group EBITDA margin is projected at 17% for 2025, down from 19% in 2024. 

The Pulp EBITDA margin is projected to hold steady at 15%. Free cash flow is forecast to be a deficit of €11.5 million in 2025. 

Consequently, net debt is anticipated to increase to €403.9 million, resulting in the group’s net debt/EBITDA ratio reaching 3.1x.

Despite Jefferies’ recognition of Ence’s long-term potential in renewable energy - which is targeting >€130 million in EBITDA, the brokerage maintains that its current valuation does not incorporate upside due to execution risk. 

Despite pulp prices remaining below historical averages and no near-term recovery in sight, the shares are expected to remain range-bound.