Russel Metals Inc. (
) is poised to “benefit meaningfully” from a recent run up in hot rolled coil prices, said Stifel analyst Ian Gillies.
Upon resuming coverage, he called the Mississauga-based company “well run” with a “sound operational strategy.”
“The company just exited what can best be described as an amazing year,” he said. “The 2022 outlook is very healthy and has improved considerably over the prior four weeks due to higher commodity prices. The company should be able to use its significant cash generation profile to execute more M&A.”
Mr. Gillies thinks its 2021 profit may prove to be “a peak,” however he sees Russel’s outlook remaining “well above the trend line.” Noting product prices have tapered, making year-over-year’ comparables “challenging” in 2022, he’s projecting 2022 EBITDA and earnings per share of $475-million and $4.71, well above the average from 2015-2019 of $181-million and $1.48.
“The last month has seen a dramatic 56-per-cent increase in the 2022 HRC strip,” he said. “As a result, our 2022 EBITDA and EPS are 34 per cent/50 per cent above consensus while 2023 EBITDA and EPS are 19 per cent/33 per cent above consensus.”
“Cash deployment will be a catalyst to move the stock higher. We estimate that RUS will exit 2022 and 2023 with cash positions of $353-million and $782-million. This will give the company ample opportunity to do more acquisitions like Boyd Metals. We think the company will continue to expand its presence in the U.S., given it only holds 3-per-cent market share in that country compared to roughly 20 per cent in Canada.”
Mr. Gillies set a “buy” rating and $36 target. The current average on the Street is $39.
“We rate Russel Metals as BUY given its positioning to benefit from elevated HRC and plate prices in North America,” he said. “The company’s Energy Products segment should also see improvements given the recovery being experienced in the North American energy sector. The company’s significant cash position should also allow it to execute an active M&A strategy. Lastly, the company’s current P/Book of 1.2 times is typically an attractive entry point in the context of forward 12-month returns.”
RUSSEL METALS
30.51+4.99 (19.55%)