(Sharecast News) - Jefferies upgraded its rating on packaging firm Mondi on Friday following year-to-date underperformance.
The bank said the strategic rationale for the merger with rival DS Smith is "compelling", with "substantial" synergies and value creation.
"Consolidation is good for the industry - we upgrade standalone Mondi from hold to buy post underperformance YTD, and are buyers of both DS Smith and Mondi," it said.
The bank said it prefers DS Smith "given short-term technical pressures on Mondi".
Jefferies said its pro-forma estimates see approximately €3.3bn EBITDA and more than €2 earnings per share by year three post full synergy delivery.
The bank has a price target of 1,650p on Mondi.
It emerged last week that Mondi had agreed to buy smaller rival DS Smith for £5.1bn. The agreement in principle has an implied value of 373p per DS Smith share.
Under the terms of the deal, Mondi shareholders would own 54% of the combined entity, while DS Smith shareholders would own the rest.
At 0915 GMT, Mondi shares were up 1.1% at 1,325.50p,
Mondi (MNDI)