Gelukkig zijn er nog positieve geluiden dus we kunnen weer verder omhoog
bron Seeking Alpha
Although ArcelorMittal (MT) is going through a tough time, it should get strong support by recent political and macroeconomic developments.
The company's true value lies in its geographically diversified, vertically integrated business model likely to yield high margins once raw materials costs start to matter again.
Share price has already started reflecting steel and mining giant's brighter future, with additional confirmation from commodities markets.
Numbers speak for themselves?
As ArcelorMittal (NYSE:MT) has just reported Q1 results, it might seem the future looks gloomy for this company. With sales and operating income down to $17,118M and $571M vs. $19,788M and $674M respectively in Q1 2014, it does not inspire confidence in MT business. The bottom line position is even worse, with $(728)M vs. $(205)M a year ago. Most of this loss can be attributed to unprecedented dynamics of the USD appreciation, resulting in $756M FX and other net financing costs vs. $380M in Q1 2014. Although this item is largely non-cash and primarily relates to the impact of the USD appreciation on Euro-denominated deferred tax assets, it still did not prevent MT from extending its negative cash flow for Q1 to $1,237M vs. $1,171M a year ago. It is also important to note the structure of MT liquidity position has changed as it now consists of $2.8B of cash and cash equivalents and $6.0B of credit lines, none of which have been drawn. This, combined with a debt repayment schedule reasonably spread-out over the next few years with an average $2.3B falling due each year until 2019, as well as the recent net debt reduction efforts ($16.6B vs. $18.4 in Q1 2014), allows MT not to be concerned about their financials in the coming years.
Appearances can be deceiving
Although the figures stated above do not seem impressive, an investor has to look beyond these numbers and consider the fundamentals of MT business. Recent developments in Asia, where China managed to gain significant support for its Asian Infrastructure Investment Bank (AIIB) on the side of most developed and major emerging economies from all over the world (with a noticeable exception of the US) create a great opportunity for MT. The company's wide-spread presence on nearly all continents and 60 countries, including 4 production sites in China, can now be used at its full potential to drive the future results. One must realise this is truly an international corporation which should be regarded as an immense advantage allowing for diversification of assets and revenue sources in terms of geography and being immune to political instability of certain countries where the company's facilities are located, as shown on the map below.
Another area of the world where MT is already seeing a big improvement is Europe, especially EU countries. Quantitative easing programme initiated by ECB, potentially worth 1,100B EUR, currently underway and lasting most probably until end of Sep 2016, has already started supporting increased investments in infrastructure, eg. UK's High Speed 2 and Crossrail, or Poland's railway projects. Although steel prices have fallen here, similarly to the company's other geographical segments, the positive aspect of steel shipments increasing by 10.9% YoY to 10.7Mt cannot be overlooked. Incidentally, this observation applies to the company as a whole, which has seen sales increase by volume to 21.6Mt from 21.0Mt a year ago. This proves that the demand for company's products is picking up which allows an investor to be optimistic about the company's prospects.
All control in one hand
MT long-term strategy to develop mining operations alongside its steel production segment is of particular importance in light of projected surge in commodities prices as the economy makes a transition from a deflationary expansion phase to an inflationary expansion phase, with commodities and commodity stocks being preferred investments. The ability to control the whole supply chain and be independent of the iron ore and coal market prices is likely to act as one of the triggers for revealing the company's real value. Higher steel prices, combined with increased margins resulting from low raw materials costs, can allow MT to dominate and outperform its industry peers.
Market knows better
What might have escaped some investors' notice is Resolution X passed nearly unanimously at the recent Annual General Meeting of Shareholders. Following that vote, the board of directors will be allowed to authorise a repurchase programme, as a result of which MT will be able to hold up to 10% of the company's issued share capital. This decision, combined with the slowdown in share price decline in the last months, presented in the table below, might be seen as one of the major reasons for making an investment in MT equity at current levels.
Period
Price
% change
Current (as of 07 May 2015)
10.35
N/A
1 month
9.54
8.49
3 moths
10.32
0.29
6 months
12.42
-16.67
1 year
16.40
-36.89
3 years
16.71
-38.06
Trust in the family
Last but not least, such a huge organisation like MT, might be in fact considered a family business, bearing in mind that nearly 40% of shares and voting rigths belong to the Mittals. Moreover, major positions in the company are held by family members with a necessary level of competence and qualifications. This quite unique situation might be treated as an additional guarantee of personal involvement and caring about the long-term prospects of the business, as opposed to "quick-buck" attitude so typical for many institutionally-owned corporations run by hired managers, often acting against their employer's and shareholders' interest.
Based on all the issues discussed above, one should be able to see a tremendous opportunity in MT, currently clearly out of favour with irrational stock market forces. More cautious investors might consider building a position in the company's shares more carefully, until the positive outlook is confirmed by stronger Q2 results, due to be released on 31 Jul 2015, reinforced by sustained change of trend in commodities prices