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24 Aug 2021
Improving but still lagging
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Improving but still lagging
Salzgitter AG (SZG:ETR) | 0 0 0.0%
- Published:
24 Aug 2021 -
Author:
Gresser Tristan TG | Wang Xin XW -
Pages:
12
SZG''s beat in Q2 was mainly the result of elevated inventory valuation gains and equity income, while the core steel business continued to underperform peers, highlighting its longer term contract structure but also the need for value-add investments and cost-saving initiatives. However, we continue to see further upside risk to guidance as we flag the optimistic plate outlook, aided by the new heat treatment line, as well as higher flat steel volumes following the restart of one of Europe''s last idled blast furnaces. We particularly await SZG''s new CEO strategy, to be unveiled in 1H22, to obtain more clarity on the company''s decarbonization plans and any potential restructuring.
Trading, Aurubis drive Q2 beat. Steel operations to improve in H2
Steel operations disappointed in 2Q21 as SZG suffered more than expected from its contract and automotive exposure, on top of additional supply disruptions (50kt lost due to a lightning strike). Moving forward, FY21 EBT guidance of EUR 400-600m is left unchanged, although management is now confident in reaching the top end, where we (EUR 640m) and consensus (EUR 654m) already are. Positively, H2 earnings contribution will shift from Aurubis and Trading to Strip Steel (restarting a 600kt furnace in November) and Plate and Section, back to profit only for the second time over the past nine years (despite continued weakness on large diameter pipes). More importantly, SZG''s new CEO will unveil his strategy in spring 2022. The group''s portfolio, organization, management structure, reporting and decarbonization are notably on the table.
New corporate strategy to confirm decarbonization timeline/budget
We expect capex to catch up in H2 to meet the company''s full-year guidance of EUR400m while cash tax payments should also be on the rise. Positively, SZG expects a release in working capital in H2. Meanwhile, the steelmaker is still weighing its options regarding decarbonization (location of DRI plant)...