JPMorgan upgrades Mondi, Smurfit Kappa

The bank noted that all three have seen their share prices decline by 15% year-to-date on market concerns over lower prices, de-stocking and general macro woes.

"In our view, testliner prices are at/close to the bottom as costs are starting to support prices (implies box prices bottom in H2 2023)," it said. "The timing and quantum of the destocking cycle continues to be a risk, but we think that de-stocking (circa 4-5% of current demand weakness) should improve in H2 23.

"We do not factor in a sharp recovery in prices due to ample supply but we think bottoming prices should see earnings trough in FY24e."

JPM said that considering that all companies are trading at trough multiples on trough earnings, it thinks that these risks are reflected in the price, hence the two upgrades and keeping DS smith at OW.

"We prefer Smurfit Kappa over DS Smith on its lower gearing and better FCFF profile, while we think Mondi represents longer-term value, expected headwinds in the UFP and Flexible Packaging divisions as well as the continued Russia overhang could delay value realisation."

JPM cut its price target for Mondi to 1,355p from 1,606p and for Smurfit to 3,100p from 3,400p.