Morgan Stanley Upgrades Fibria Celulose On FX Benefits, Pulp Prices

In a report published Friday, Morgan Stanley analyst Carlos De Alba upgraded the rating on

to Equal-weight, while raising the price target from $13.50 to $14.70. The deteriorating macro outlook in Brazil is expected to have a positive impact on Fibria Cellulose. Analyst Carlos De Alba said, "Given the sensitivity of Fibria's results to BRL (a 10% depreciation would lift EBITDA by ~R$900M, we estimate), a weaker real would imply upside to our new estimates." A weaker BRL is also expected to offset the impact of the expected decline in pulp prices in the coming months, Alba mentioned. In the report Morgan Stanley noted, "Stoppages in China may limit the degree of the pulp price decline: Reported stoppages of two Chinese hardwood pulp lines with a combined capacity of 1.8Mtpy (~5% of the overall BHK market) will offset, at least partially, the ramp-up of Guaiba 2 in 2H15, limiting the decline in pulp prices we still forecast over the coming months." Fibria Cellulose reported robust 2Q15 results, with adjusted EBITDA up 16 percent q/q and 98 percent y/y. The better-than-expected performance was driven by slightly higher pulp shipments and lower SG&A. The company's normalized EPS of R$1.07 was 5 percent below the Morgan Stanley estimate of R$1.12, but above the consensus expectation of R$0.83, due to higher-than-expected tax credits.