Entering text into the input field will update the search result below

ArcelorMittal: A Steel Leader

Jun. 08, 2020 12:29 AM ETArcelorMittal S.A. (MT)14 Comments


  • An attractive alternative in a cheap industry.
  • Reasonable debt structure under the hands of debt-conscious management.
  • Interesting valuation that offers protection even for depressed cycle performance.

Why Steel

As of the end of May 2020, steel, together with banks, O&G drilling, some insurance businesses and fertilizers, is one of the cheapest industries in the market. Its performance in the last year has been negative, losing 20% of its market value.

The steel industry is trading at 10x earnings, a 20% discount to its book value and 6x 2019 EBITDA or 10x its 2020-21 estimated EBITDA.

The 20 largest steel companies as of that date are listed below. As we can see, there are significant differences in historical growth, margins, return on capital and current valuation, as measured by EV-to-EBITDA-LTM.

ArcelorMittal (NYSE:MT) seems to be the cheapest company in terms of EV multiple to LTM’s EBITDA, which was the main reason to start looking into this company. Besides, it is clearly an industry leader able to capitalise into the consolidation that a crisis like the present one might bring.

Steel industry snapshot

The steel industry is not particularly profitable. There can be particularly good years, but the bulk of the returns on capital are going to be in a 5-15% range, and they can be volatile from one year to another. The main driver of return on capital is margin, rather than turnover on capital.

The ROCE of the industry, represented by those 20 largest companies (and MT following a similar path in the last 15 years), was clearly in a negative trend until 2010, when it reached less than 5%, and then had a gradual recovery until 2019, when it reached 15% just before the COVID induced crisis on production first and on demand afterwards.

MT is clearly not the best performer, especially with regard to EBITDA margin, but is able to keep up with its return on capital because is more efficient in turnover and in the

This article was written by

I am a private investor mainly focused in so called value investing. Writing helps me to structure my investment ideas as well as to submit them to other people's opinion and critics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MT 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.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.