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The group released a solid set of results for Q1 22 It is maintaining the guidance issued in April We still believe that the current macro context could hurt We will fine-tune our numbers, with no major impact on our target price at first sight
Companies: Salzgitter AG
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As expected (and communicated in the preliminary results), the FY21 results were very sound. The group benefited from high volumes and sky-rocketing prices. The guidance is supportive, even if it does not integrate the latest geopolitical developments. We are therefore a bit sceptical that the group can achieve its (unchanged) targets for the current year.
The group presented its strategy to reach its 2030 environmental targets. Altogether, it looked like a marketing exercise and we ended up a little bit frustrated by the lack of financial targets, among others. Our numbers will not change after this event.
The Q3 21 came as no surprise after the release of preliminaries in late October. They showed a still strong profitability on the back of firm prices. The market was probably surprised that the guidance was not revised upwards. It may also have to wait for the new CEO to present his strategy in early 2022. We will revise our numbers and valuation upwards on the back of this release.
The H1 21 numbers came in roughly in line with the street’s expectations The results were driven by the Strip Steel and Trading business units as well as the strong contribution from Aurubis The net financial position is stable despite the pick-up in activities The value of the CO2 allowances procured by the EU greenhouse gas emission trading scheme starting in 2021 amounts to almost €1bn The new strategy is to be presented by the incumbent CEO in spring 2022
Q1 21 results (already partly released on 25 April) came in above consensus Almost all segments did well on higher volumes and prices The group substantially raised its full-year guidance The contribution of Aurubis was also substantial We will adjust our numbers and target price
FY20 in line with preliminary results The operating cash flow has turned positive in Q4 No dividend to be paid for FY20 The group’s forecasts may look conservative The group insists on its green initiatives We will revise upwards our cautious forecasts
Salzgitter’s management excuses the company’s very poor profitability with special effects. This was the case in the past and is again used as an excuse for the sizeable 2019 loss. Although the virus has changed the overall picture for the steel industry, management expects this year’s revenue to increase by more than 5% to €9bn and break-even pre-tax earnings.
Salzgitter has released regular profit warnings during the course of 2019. It now uses the current weak environment to write off another €200m of the group’s assets. As a result, the pre-tax loss is now expected to amount to €250-280m.
With the exception of Mannesmann (i.e. tubes), all divisions saw their ASPs falling in the last quarter. Consequently, and with the exception of Strip Steel and Technology, all divisions suffered from pre-tax losses. In fact, both Plate/Sections and Mannesmann are now showing a pre-tax loss for 9M 19.
Having given a dismal pre-tax profit guidance for 2019 (€125-175m), management now expects a loss for the current year.
Delivery volumes and sales prices are driving the steel industry’s profits. Salzgitter’s Q2 numbers for both Strip Steel and Plate/Sections showed falling volumes and falling ASPs. As a result, not only divisional earnings fell but also consolidated profits were down as well.
Salzgitter holds a 25% stake in Aurubis, the copper smelter. This affiliate has contributed extremely volatile at-equity profits in recent years and was expected to contribute rather high earnings in the coming years. This seems to be under threat.
Salzgitter holds a 25% stake in copper refiner Aurubis. This stake was lowered a while ago as Salzgitter had issued a bond that was convertible into Aurubis shares. The stake has again been increased to 25% in Q1 19 and the revaluation of the stake plus its at-equity profit contribution increased stated earnings by around €43m. The reported profit increase was less than that.
Salzgitter had released preliminary revenue and profit numbers for 2018 in early February and has now released its annual report. Based on management’s release in February, we had expected the dividend to be raised from €0.45 to €0.60 but the final proposal is €0.55. In addition, we had expected the balance sheet to show net debt at the end of 2018 (€69m), but the number has actually increased to €95m.
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