ArcelorMittal

ArcelorMittal is one of the world’s largest integrated steel manufacturing and mining companies. It is Europe’s largest steel operator, and has operations in sixteen countries on four continents.

Revenues are primarily generated in Europe (57%), followed by NAFTA (16%), Brazil (14%), and CIS countries (11%). Its primary products are flat steel (55% of revenues) followed by long steel products (24%), and its primary customer is the automotive industry.

Its main market, Europe, is expected to encounter economic headwinds caused in no small part by spikes in energy costs, which is a significant component of the company’s cost structure.

The financial track record is strong, particularly recently with increases in steel prices. It reported US$ 82.2b in TTM revenues (FY21: $76.6b), ebitda of $20.9b (FY21: $19.1b), and net income of $16.8b (FY21: $15.6b). Normal demonstrated net income is much lower, however, at $5 to $6b.

The company has also aggressively paid down debt, which currently stands at $8.7b offset by cash and equivalents of $5.6b resulting in net debt of $3.1b, which is a fraction of one-year ebitda. It has a further $5.5b in undrawn credit facilities.

Net tangible assets stand at $54.4b after apparently rigorous impairment testing (including the use of 8.6% discount rates for European assets) and write-downs of inventories to net realizable value (FY21: $1b). It also includes stakes in joint ventures and associates of $10.9b, which are profitable in aggregate.

The equity currently sells for ~$20b (after full dilution of convertible notes), which is 37% of tangible asset value, and ~4x average earnings.

Management have bought in stock aggressively, expending over $5b in the last twelve months (at prices up to EUR 28/share) in addition to dividends of $312m. It spent $1b in the first six months of 2022 and has further authorization for another $1b of share repurchases this year.

Further, even after the commencement of the war in Ukraine (which impacted $2.3b in tangible assets and $4b in revenues), management intend to incur total capex of $4.5b (FY20: $3b) and “strategic” capex of $3.6b up to 2024, which is expected to generate $1.2b+ in ebitda. Management appears convinced of steel’s future in a low-carbon economy with no substitutes.

Overall, the market appears to have priced in a very bleak future for the equity of this well-managed company, and seems to represent good value for money – surely even the shrewd top management would approve.