Post by
geosan0 on Feb 24, 2022 2:42pm
Earnings Call
Listened to the call this morning and here are some of the takeaways from that call (only the messenger folks):
Negatives:
Asked about hedging - Hedging based on the cme futures is misleading because the actual price in the market for steel is $200 below the price quoted on the cme futures.
Asked about sales visibility - The company has none as its order book is not as yet closed for the first quarter. Based on this lack of visibility volume shipped in Q1 is expected to be below Q4 volumes which were down sequentially from Q3.
My take on those comments:
1. Going forward I will not use the spot price on the cme futures but rather the forward price discounted by the $200 mentioned in the conference call. So based on the current forward price of $1,000 US$, STLC should expect to receive about $1,100 CDN$. This would put in the the middle of the range of what the company was able to charge in 2020 and 2021.
2. Given the lack of visibility, I figure the company should be able to average about 600 nt per quarter.
Positives:
Asked about cash balances - STLC has returned more cash back to shareholders in the form of buybacks and dividends since 2018 than any other steel producer and has also returned more cash back than was raised when the company was taken public. STLC will continue to do this by way of dividends (nothing mentioned about special dividends) and buybacks (authorized to acquire about 4.5m shares)
My take on the comments above:
The initial shareholders have probably already received their initial capital back so any return going forward is pure proft. Don't seem to be in a hurry to deploy the capital as the share buyback with the projected dividend should be covered by Q1 cash flow.
Also, back of napkin calculations, I figure with the reduced share count in 2022 and STLC having the best margins in the business (their words not mine), STLC should be able to comfortably earn about $10/share in earnings for the entire 2022. If that occurs then the BV of the company will be about $30/share with about $15-$20 of that in cash.
Based on the above, we are looking at a company that has a trailing P/E of less than 2, a potential forward P/E of 3. I'm feeling pretty comfortable but don't think the market will give STLC a higher valuation based on current market conditions.
Hope I'm wrong but i'm willing to hold this play just in case.
GLTA
Comment by
CHECKMATE77 on Feb 24, 2022 8:42pm
Thanks for your take thanks for posting a Year ago these results woukd have had a double digit share price response today.. nada
Comment by
Duke16 on Feb 25, 2022 11:17am
This unfortunate conflict/war in Ukraine will have a positive impact on the forward looking statement about Steel Prices in 2022 and maybe beyond. Don't mean to put any positive spin on the issue at all, just stating that the more involved this becomes the more Steel Prices will increase going forward.
Comment by
dieter216 on Feb 25, 2022 1:01pm
Agreed...not the catalyst we want.. Nucor, Steel Dynamics etc up strongly today.
Comment by
Eastbank on Feb 25, 2022 5:16pm
You're correct...both Nucor and Steel Dynamics were up over 9% on the day. Why didn't Stelco share in the euphoria based on their recent very positive quarter?
Comment by
Duke16 on Feb 28, 2022 5:54pm
Given the volatility in the Stock Market due to Ruassia/Ukraine conflict, Stelco's Balance Sheet with no long term debt and a BILLION dollars in cash looks even more attractive!!!
Comment by
Reitguy on Mar 01, 2022 6:39am
Good breakdown dieter. Nothing on the earnings report got me excited, i haven't been thrilled how the buybacks have been handled so far. Dutch auction etc.. The one positive take away that they mentioned multiple times was their low cost advantage.