Stelco Holdings Inc STZHF

RBC Report

[retiredcf]

Their upside scenario target is now $78.00. GLTA

August 16, 2021

Outperform

TSX: STLC; CAD 47.29

Price Target CAD 62.00 ↑ 59.00

Stelco Holdings Inc. Model Update

Our view: We update our model for the completed buyback and cancellation of 11.4M common shares owned by LG Bedrock Holdings LP (Lindsay Goldberg) and our price target increases to $62 from $59. We continue to like Stelco for its strong leverage to North American steel prices through its highly fixed, low cost operations. We maintain our Outperform rating.

Key points:

Price target increases on the buyback: Stelco announced and completed the repurchase and cancellation of 11.4M shares (~13% of outstanding common shares) from LG Bedrock Holdings LP (Lindsay Goldberg) at a price of $34.93/sh, a discount of ~26% to the August 12th closing price, for gross proceeds ~$400M. Given Stelco's strong FCF generation at current steel prices and commentary from management we expected a return of capital to be announced sometime in Q3 and the gross proceeds is also inline with our estimates. Our price target improves to $62 from $59 on the reduction in shares and purchase at the discount to our target. The repurchase and cancellation of shares owned by Lindsay Goldberg makes sense in our view as it doesn't impact the float while still increases the relative ownership of outstanding shareholders.

We continue to like Stelco for its highly fixed, low cost operations and expect the company to be in a position to make further capital returns based on our estimates.