Vidrala shares target cut due to challenging market conditions

On Monday, Citi adjusted its financial outlook on Vidrala (LON:) SA (VID:SM) shares, a European glass packaging manufacturer, by reducing the company’s price target to EUR99.00 from the previous EUR104.00 while maintaining a Neutral rating on the stock.

The adjustment comes after Vidrala’s shares experienced a fluctuation, initially rising and then falling, following the company’s second-quarter results, which met expectations. The company has reiterated its guidance of more than EUR 450 million in EBITDA, suggesting a flat performance in the second half of the year compared to the first half’s EUR 225 million.

Despite the steady guidance, Citi anticipates challenges ahead, forecasting an EBITDA of EUR 433 million, which is below the consensus of EUR 454 million. The firm cites potential difficulties due to a slow recovery in volume and weaker pricing. While European volume comparisons might ease in the second half of the year, the situation in Brazil is expected to become more challenging, especially given the increased capacity from Porto Ferreira.

The analyst from Citi does not expect significant changes in pricing sequentially, but anticipates a double-digit percentage decline for 2024 that could offset any improvements in volume. They also foresee a higher downside risk for pricing compared to volumes. However, the firm predicts that margins will remain supported by low energy costs, and high margins in Brazil are likely to boost the group’s average.

In the current weak market, Citi reiterates its Neutral stance on Vidrala, noting the company’s significant exposure to the beer sector, which could lead to an earlier recovery, but also poses risks of temporary switching from glass to alternative packaging materials like cans. Given Vidrala’s high valuation multiple and unclear growth strategy, the firm suggests investors might prefer to seek recovery plays elsewhere.

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