Fibria Celulose Downgraded At Morgan Stanley On Brazilian Currency Concerns

The currency headwinds are unlikely to reverse soon for Fibria, a Brazil-based pulp and paper producer.

The brokerage recently revised its BRL forecasts to R$3.15 at YE16 (vs. R$3.75 before and R$4.45 inJan'16) and R$3.40 in YE17 (vs. R$3.80 before and R$4.20 in Jan'16).

"Fibria's cash flows are highly levered to the real given that ~85 percent of its costs are denominated in BRL and all of its revenues are directly or indirectly in USD," analyst Carlos De Alba wrote in a note.

Further, the pulp prices are already at the bottom and the analyst said the pulp prices will be pressured due to the supply growth and lower capacity utilization in the future.

Moreover, the rapid change in Brazilian political environment and stronger real are likely to hit cash flows, which in turn will weaken the balance sheet.

"We see ND/EBITDA reaching 3.0x in YE16 and 4.3x in YE17, up from 2.2x at the end of last year—unless the company sells assets or modifies investing plans," De Alba noted.

Shares of Fibria Celulose closed Monday's regular trading session at $6.37. The analyst cut the price target by $3 to $6.90.

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