Goldman Sachs Rates European Paper Stocks#

Goldman Sachs has begun analyzing six European pulp and paper companies, expressing a preference for packaging firms over those that produce raw materials. Their earnings forecasts are generally 4-6% lower than what the market expects through 2027.

Ratings Overview#

The investment bank has given “buy” ratings to SIG Group, a Swiss maker of aseptic cartons, and Smurfit Westrock, an Irish-American containerboard company. In contrast, they have issued a “sell” rating for Stora Enso, a Finnish forestry group, while maintaining “neutral” ratings for Mondi, UPM, and SCA.

Market Performance and Challenges#

Goldman Sachs noted that the paper sector has significantly underperformed the STOXX 600 index, lagging by about 66% since the beginning of 2023. This decline is attributed to an oversupply of pulp in the market and increasing competition from China, which is affecting European producers.

Pulp Pricing Concerns#

A key factor behind Goldman’s cautious outlook is the expected decline in pulp prices. They predict that hardwood prices in China will drop from $595 per tonne to $550 by 2027. Additionally, new supply is anticipated to outpace demand growth, with an excess of 1.8 million tonnes of supply compared to a 1.2 million tonnes increase in demand each year until 2029.

Specific Company Insights#

Goldman Sachs sees SIG Group as a strong investment opportunity, setting a price target of CHF 16, suggesting a potential 48% increase. The stock is currently trading at a 33% discount compared to its 10-year average valuation. Smurfit Westrock has a target of $49, indicating a 35% upside, largely due to its significant earnings from North America.

On the other hand, Stora Enso is viewed negatively, with a target of €8.0, implying a 16% downside. Goldman believes that Stora’s new mill will face challenges as Chinese exports shift to Europe, putting additional pressure on the market.

Among the neutral-rated companies, UPM is trading above its historical average, Mondi is facing slow demand recovery, and SCA is experiencing short-term challenges due to falling wood prices.