Befesa up after MS upgrades to 'equal-weight' on better risk/reward
29/04/2024 09:38
** Shares in Befesa BFSA.DE rise as much as 2% after
Morgan Stanley upgrades the metals recycling group to
"equal-weight" from "underweight", saying its risk-reward
profile has improved following a sharp share price decline
** The stock is down 23% YTD, and trading at a more
"reasonable" multiple of 7 times EV/normalised EBITDA, vs M&M
peers at 6-7 times, MS says
** The brokerage says the upside to Befesa's share price
depends on factors such as a profitability increase from China
operations and the realisation of annual synergies from the U.S.
assets
** Other factors are an increase in zinc and aluminium
prices and a "convincing path" in reducing financial net
leverage from today's elevated level of >3x (ND/EBITDA), it adds
** However, the broker flags long-term structural risks,
such as steel mills' plan to shift feed stock to a mix of direct
reduced iron, pig iron, and scrap, versus primarily scrap today
** The shift could lead to steel dust of inferior quality,
and presenting risks/uncertainty to Befesa's IRR/return
ambitions
(Reporting by Paolo Laudani)
((Paolo.Laudani@thomsonreuters.com))