JP Morgan upgraded Mondi PLC (LSE:MNDI) and Smurfit Kappa Group plc (LSE:SKG) after concerns about lower prices, destocking and the macro environment saw the share prices fall around 15% this year.
The US investment bank thinks testliner prices are at/close to the bottom as costs are starting to support prices implying box prices will bottom in the second half of 2023.
JPM accepts the timing and quantum of the de-stocking cycle continues to be a risk, but think that de-stocking should also improve improve the second half.
It hasn't factored in a sharp recovery in prices due to ample supply but thinks bottoming prices should see earnings trough in the financial year 2024.
"Considering that all companies are trading at trough multiples on trough earnings, we think that these risks are reflected in the price."
The broker upgraded Smurfit Kappa and Mondi to 'overweight' from 'neutral' and maintained DS Smith at overweight.
"We prefer Smurfit Kappa over DS Smith on its lower gearing and better FCFF profile, while we think Mondi represents longer-term value," the broker said.