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Aperam: A Cash Cow With A 54-62% Upside Potential

Aug. 24, 2018 2:33 PM ETAperam S.A. (APEMY) Stock
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  • Aperam reinstated a shareholder-friendly policy.
  • High free cash flows assure further dividend growth.
  • Above all, Aperam reached a net cash position.
  • Based on an attractive WACC, Aperam's upside potential is nearly 60%.

Executive summary

Although the steel sector hasn't always been an opportunity for investors. We have to focus on the right companies. Some steel manufacturers are heavily loaded with debt. In this article, I'd like to highlight Aperam (APEMY) which was spun off from ArcelorMittal in 2011. Since then, the company has become a leading global producer of stainless steel. Aperam provides customized services and solutions, while the group is focusing on improving its margins. Thanks to the relatively high and stable margins, Aperam succeeds in its strategy to benefit from an increasing global demand for electric vehicles. So Aperam isn't just a traditional commodity player, it is rather more diversified than its peers. Based on strong growth momentum for stainless steel and the net cash position, the market doesn't realize what kind of powerhouse Aperam is.

Given this discrepancy and a WACC of 8%, I think Aperam's fair value is 54-62% higher than today's share price. The reason for the chosen 8% WACC is arbitrary, but refers to the economic dependency of the steel sector resulting in a higer risk premium. However, there still is enough upside even with economic turmoils. The group is trying to benefit from the current discount by repurchasing shares.


Aperam's business profile is split into three main divisions:

  • Stainless and electrical steel
  • Services and solutions
  • Alloys & Specialties

Aperam is a leading global producer of stainless steel by production capacity. Electrical steel is going to be the key driver of this division. Electrical steel is a soft magnetic material. In such materials, an external magnetic field generates a magnetic flux density that is many times higher than would be the case in air. In simple terms, the magnetic field is strengthened by the soft magnetic materials. Flux density is key to the torque of an electric motor. Core losses are another

This article was written by

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Quality-investor focusing on compounders with a durable ROIC and optimal capital allocation.As a senior finance manager and private, self-employed M&A analyst, sustainable shareholder value creation has become an obvious concept for me. It starts with generating true cash flow, reinvesting at a decent rate of return (only for investments that will add value, i.e., no investments that are dead capital in the form of un-utilized capacity) and returning all other excess free cash flow back to shareholders.My articles on Seeking Alpha share insights into which companies fit my criteria. Please feel free to reach out to me so that we can have some enlightening discussions.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in APEMY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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