ArcelorMittal: Time To Buy The Turnaround
Apr. 3, 2014 11:46 AM ET | 4 comments | About: MT, Includes: NSSMY, SLX
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
ArcelorMittal has a nice turnaround plan in place, and is executing well.
The company is also ramping up its capacity to address steel demand in the long run.
ArcelorMittal is also expecting better steel demand going forward, which will be driven by China and increasing auto demand.
ArcelorMittal (MT) has been going through troubled waters for quite some time. The stock is down 11% this year, but ArcelorMittal is seeing gradual improvements in the business. The company anticipates recovery in the U.S. and European markets this year, and expects steel and iron ore demand to rise with the markets. So, should investors think of jumping into the stock, as it is currently seeing weakness?
ArcelorMittal's recent fourth-quarter results were promising, and management expects improvements and progress on various fronts. It has been able to reduce its net debt by $5.7 billion, and expects better things in the future. Let's take a look.
Turning around
ArcelorMittal is currently chasing a turnaround. It has made improvements at various levels of its business, which was evident in its performance in fiscal 2013, as the company's fourth-quarter shipments were up 4.5% year-on-year. It has also expanded its existing capacity at various locations, such as in Canada, with mining ramped up to 24 million tonnes per annum. In addition, ArcelorMittal has acquired ThyssenKrupp to expand its presence in the growing NAFTA automotive and energy steel markets.
This acquisition also involves its peer, namely Nippon Steel & Sumitomo Metal (OTCPK:NSSMY). Together with Nippon, ArcelorMittal has agreed to acquire ThyssenKrupp's rolling and finishing facility in Alabama. According to management, this acquisition will have a minimal impact on its balance sheet, but it is significant in terms of strategy.
ThyssenKrupp's Alabama facility is one of the most advanced steel finishing facilities in the world, with powerful, state-of-the-art hot strip mill, which is well-suited to address North America's increasing demand for advanced high-strength steel. ArcelorMittal expects this deal to be completed in the current quarter.
Expansion and optimization plans
ArcelorMittal has chalked out expansion plans for other areas as well. In Brazil, the expansion in long steel products is under progress, including a new wire rod mill in Monlevade. It plans to further invest in Juiz de Fora to raise melt shop and rebar capacity, which it expects to be completed by 2015. The construction of VAMA steel complex in China is progressing well, and Arcelor anticipates production to start in the second half this year. And lastly, in Argentina, it is constructing a 400,000 tonne rolling mill to optimize production.
Arcelor is also seeing growth in its mining business. It plans to increase its total iron ore production to 84 million tonnes by the end of 2015. Its second phase of expansion in Liberia is also in full progress, and the company plans to complete this by 2015. Arcelor understands the importance of its assets, and is investing in asset optimization. This includes $1.4 billion for restructuring costs and $800 million for non-cash fixed assets of impairments.
ArcelorMittal is positive regarding the outlook for most economies. In the U.S., fundamentals remain strong, with robust auto sales and appliance demand. In Europe, the manufacturing PMI in January rose to its highest level since early 2011, and has remained above 50 for six months. In China, steel demand remains strong, particularly due to auto production, continued growth in infrastructure investment, and strength in real estate.
Conclusion
Arcelor has a promising forward P/E of 11.06. Management has taken various decisive actions to turn around the business, which makes it an interesting option given the recent weakness in the share price. Investors should definitely consider ArcelorMittal, as the company is slowly and steadily turning around.
