Wednesday, June 12, 2013

Analysis of ArcelorMittal

A French/American steel company

Company: ArcelorMittal

Business: Mining (iron ore + coal) as well as steel production. I found it funny that they are talking about up stream and down stream just like oil companies to describe the two parts.

Active: At least they claim to be the largest steel producer in the Americas, Africa and Europe. They have 16 mines running or under development (globally) and are running steel-mills in 20 countries.

P/E: -5.1

This company was requested here. Unfortunately this company must be considered... besides from being cyclical that it is potentially also a turnaround. This meant that I was forced to make two analysis. One with the today situation and one considering the P/E5.

But first lets take a look at today:

Due to a big loss in 2012 the P/E is negative. The good thing is that they have a very nice P/B of 0.37! The earnings per sale is also not looking very nice but the book to debt is also great! The have had a significant drop in revenue since 2008 and for that reason their growth for the last five years has been a negative 7.6%. Maybe one could expect a growth of 3% which would then motivate a P/E of around 10. They pay a dividend and they have done for the last five years at least. However it was significantly decreased last year.

With the P/E5:

Now the company looks a little bit more interesting. The P/E5 becomes 8.7 so well below my favourite 10 and with the excellent P/B we get a very clear buy from Graham. However the earning per sale is bad with 3%. I cannot believe that that is the standard for the industry! Book to debt remains unchanged good. The motivated P/E is still only around 10 which represents that they should start to grow by 3% per year... which they are not doing. The dividends are low with 1.4% but that represents very little from the earnings so if the earnings kick back up the dividends will also do the same.

Conclusion: ArcelorMittal is definitely a potential turnaround company. I would however not buy them just yet but instead check each quarter report to see when the change is coming and then jump in as shareholder.

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