Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on SALZGITTER AG. We currently have 13 research reports from 1 professional analysts.
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CEO sees triple-digit million pre-tax profit in 2017
06 Feb 17
CEO Heinz Jörg Fuhrmann said in an interview that 2017 is likely to be the fourth consecutive year with improving profits. After indicated pre-tax earnings of between €30m and €60m for 2016, he cannot exclude a triple-digit number for the current year. Higher sales prices (as a result of import duties) combined with efficiency gains are the reason for his optimism. The CEO’s projections are no better than what we currently expect. In fact, we are forecasting a triple-digit million pre-tax profit of €106m for 2016 (preliminary numbers will be out on 28 February). This profit number includes at-equity earnings as Salzgitter is calculating it the same way. For 2017, we see this number rising to €189m. Conclusion: the CEO’s 2017 projection is the minimum Salzgitter should achieve. In spite of this, none of our target prices shows any share price appreciation potential and, although we see the EBITDA margin to increase from less than 6% in 2017 to almost 9% until infinity, our DCF model suggests that the shares are clearly overvalued.
Historic inventory had to be re-stated
10 Nov 16
Salzgitter’s revenue continued falling by 12.4% in Q3 (to €1.89bn) thus bringing the 9M number to €5.86bn (-12.4%). Based on the numbers management released a year ago, EBIT turned around from a Q3 15 loss of €50m to a profit of €28m. As a result, EBIT was up by 25% to €80m through to September whereas the 9M EBT number was down by 12% to €21m. The revenue number fell clearly short of our projection (€6.18bn) while the two profit numbers are higher (€67m and €19m, respectively). Cash generation was, however, very poor. Salzgitter typically generates high cash from operations (based on management’s definition) in Q3, but not this year. In fact, it was down by 98% to €3m only and the 9M number was a negative €3m, which is only the second time this century that it was negative after 9M.
Results were again very poor in Q2
10 Aug 16
Salzgitter’s revenue fell by 6.4% to €2.1bn in the last quarter which brought the H1 number to slightly less than €4bn (-12%). The respective EBIT numbers were -71% to €19m and -55% to €52m, i.e. Q2 EBIT was down by ‘only’ 31%. H1 net profit after minorities was €7m (-82%) and the total comprehensive loss amounted to €226m as the lower discount rate for calculating pension obligations (1.25% instead of 2.25% used at the end of 2015) resulted in a loss of €340m (before deferred taxes) and of €267m after tax. As a result of the hardly visible net profit of €7m and the comprehensive loss, the group’s shareholders’ funds have fallen by €238m to €2.65bn in H1 16. Pension provisions of €2.65bn are now, and for the first time, matching shareholders’ funds.
Q1 was a genuine disaster
13 May 16
Salzgitter’s revenue fell by 18% to €1.87bn, EBIT was down by 71% to €19m and pre-tax earnings collapsed by 94% to €3.1m. The group showed a net profit of €1.0m (€32.7m in Q1 15) but, after minorities, this translates into a loss of €0.1m. In fact, this was only achieved by booking a profit of €3.8m from discontinued operations, whereas this number was a negative of €12.2m a year ago.
Q1 16 pre-tax profit down by 94%
26 Apr 16
Salzgitter’s ad-hoc release indicates a pre-tax profit of €3.1m has been generated in the first quarter compared to €52m a year ago. The operating result has most probably been negative as the aforementioned profit number includes an at-equity profit of €12m from Aurubis compared to €3m a year ago. For the full-year, management’s guidance is for an ‘about break-even’ operating result. This will depend on when and which import duties are imposed by the EU. In addition, this guidance does not include further ‘one-off’ restructuring costs. As these costs have occurred regularly in the past and are likely to occur in the future as well, we do not regard them as one-offs.
Nothing but lip service
21 Mar 16
To improve the group’s resilience against Chinese steel imports, management has announced another cost-cutting exercise. Several hundred employees will have to leave four plants which employ a total of 1,900, out of a worldwide workforce of around 23,500 (the average was 23,677 in 2015). Assuming management is talking about 300 jobs, the cost savings will amount to some €20m or 0.2% of revenue. This is a very small number indeed and the past has shown that Salzgitter has never reduced the workforce. In fact, it was marginally up while personnel costs increased by 3% in a year when revenue fell by almost 5%. Since 2011, the last year when Salzgitter generated albeit a small but positive bottom line, the revenue number has now fallen by more than 12% but the average workforce increased by 1%. Consequently, personnel costs increased from 15.4% of total output in 2011 to 19.2% (it was 17.6% in 2014). In our opinion, it is the shareholder structure that prevents the group from genuinely reducing personnel costs. The State of Lower Saxony, which holds a blocking minority stake of 26.5%, has no interest in seeing unemployment rising. This pressing problem becomes all the more severe as VW (which is also controlled by this State) is also threatening to reduce employment. Consequently, only a genuine steel demand recovery will allow Salzgitter to return to reasonable profits, but this is not (yet) visible.
20 Feb 17
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The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.
Opuama production restarts
21 Feb 17
Eland has confirmed the successful restart of exports from OML 40 through the new shipping alternative that it has implemented. Sales from the export terminal are expected imminently, re-establishing cash generation for Eland. Cash at YE16 was US$11.1m which has since reduced to US$5.9m, mainly reflecting initial operating expenses for the shipping alternative. While it is early days, Eland has demonstrated its ability to restart exports and production from OML 40 following the shut-down of the Forcados terminal a year ago. Production to date is averaging around 7kbd and we expect that to ramp up as Opuama operational performance improves. At US$55/bbl Brent, we estimate Eland is generating a net cash margin of around US$25/bbl. We reiterate our Buy recommendation and 95p per share Target Price.
Small Cap Breakfast
24 Feb 17
GBGI—Schedule One update from integrated provider of international benefits insurance. Raising £32m at 150p. Admission expected tomorrow. Anglo African Oil & Gas— Admission expected early March. Acquiring stake in producing near offshore field in the Republic of the Congo. Guinness Oil & Gas Exploration—Publication of prospectus. Seeking to raise £50m and invest in 15 exploration companies at launch, with plans to grow the portfolio to 30 positions during its lifetime. Issue closing 23 Feb.
Operating update and shareholder activism
15 Feb 17
December and January have seen the emergence of shareholder activism at Bowleven (BLVN), bringing its strategy and management into greater focus. Its largest shareholder (Crown Ocean Capital, COC) evolved from being a supportive shareholder to voting against a number of resolutions at the December AGM, to recently calling for the widespread removal of the board and a radically different company structure. Operationally, the company reports that a new development concept is under review by the stakeholders in Etinde, where production would be piped to existing gas processing facilities in Equatorial Guinea. Such a solution would (if approved) require significantly less capex and could be brought online relatively quickly vs other solutions (fertiliser, FLNG, gas to power). We leave our valuation largely unchanged, save for a revision to cash holding to reflect the recent operational update. Our new core NAV is 49p/share.