Stelco Holdings Inc T.STLC

Earnings Call

[geosan0]

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