n a separate note, Mr. Doumet (Scotia Capital) increased his Stelco Holdings Inc. target to $32 from $30 with a “sector outperform” rating. The average is $30.07.
“Steel prices have risen higher (and stayed higher) versus forecasts made just a few months ago,” he said. “Demand continues to outstrip supply and the U.S. storms (in February) appear to have disrupted supply, which, in our view, will help sustain an elevated metal price through 2Q21. We have increased our 2021E EBITDA by $200-million (or 20 per cent). Although our forecast reflects HRC price moderation in 3Q21 (due to projected supply increases), pent-up infrastructure demand could help sustain elevated prices through the 2H21.
“While we fully recognize HRC is in the latter innings of its price cycle, we see continued upside to Stelco shares at these levels. We forecast FCF of $8.15 per share in 2021E (approximately 30 per cent of the market cap). Beyond 2021, Stelco’s improved cost position nearly ensures profitability through the cycle and industry supply discipline and increased demand for scrap will likely strengthen its earnings power longer-term. Further, significant cash generation provides ample room for return of capital and opportunities to acquire assets that capture more of the value chain.”