Morgan Stanley has upgraded Befesa SA (ETR:BFSA) to “overweight” from “equal weight,” raising the price target to €32 from €26, citing improved earnings visibility, accelerating deleveraging, and an attractive valuation. The brokerage’s new target implies a 28% upside from the June 24 closing price of €25.
The upgrade follows consistent execution and a positive revision trend since Befesa reset expectations in late 2024.
Analysts now forecast 2025 and 2026 EBITDA to be 7% above consensus, driven by favorable zinc pricing and tight supply.
Befesa has hedged 60–70% of its zinc exposure through 2025-2026 at €2,640/t and €2,655/t respectively, with spot zinc at $2,665/t. Zinc treatment charges for 2025 are set at a record low of $80/t, further benefiting margins.
Morgan Stanley estimates 2025–27 average annual cash needs at about €160 million, against a mid-cycle EBITDA of about €280 million.
This translates to a through-cycle free cash flow yield of about 11%, falling to 6% and 12% in 2025 and 2026 respectively.
Net debt/EBITDA is projected to fall from 2.7x in Q1 2025 to 2.2x by year-end, supporting the company’s 2–2.5x target range.
Capital spending is capped at €100 million annually, with focus on approved projects. Morgan Stanley sees the dividend yield remaining at 4.5–5%, fully covered by free cash flow. No upside to capital returns is expected in the near term as the company prioritizes deleveraging.
Befesa trades at 6x 2025e EV/EBITDA, a 23% discount to peers. Morgan Stanley applies a 1x discount to the peer multiple due to lower forecast EBITDA growth, but expects re-rating potential once leverage stabilizes. The firm values Befesa using a 50/50 blend of discounted cash flow and EV/EBITDA methods.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. The analysts identify Befesa as a defensive exposure to structural growth themes such as electric arc furnace (EAF) steelmaking and secondary aluminum production. Regulatory mandates and fee-based revenues reduce earnings cyclicality relative to mining peers.
Risks include delays in profitability improvements at the U.S. zinc refining plant and Chinese operations, as well as capital allocation that may impede deleveraging.
Still, Morgan Stanley sees limited downside to 2025 earnings due to hedging and current commodity conditions.
The bull case target of €56 assumes full contribution from unapproved growth projects and higher commodity prices. The bear case of €16 reflects weaker pricing and continued operational underperformance.
