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ArcelorMittal: Making Hay While The Sun Shines, Trading At 1.5X EBITDA

Dec. 04, 2021 11:35 AM ETArcelorMittal S.A. (MT)26 Comments


  • ArcelorMittal is rapidly improving its balance sheet and could soon reach a zero net debt position.
  • Meanwhile, the company is spending billions on share buybacks and will reduce its share count by over 20% in just over a year.
  • Although 2021 will likely be a peak year, the much stronger balance sheet makes Arcelor still interesting at the current levels.
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Industriële metaalbewerking

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It has been a while since I last discussed ArcelorMittal (NYSE:MT) here on Seeking Alpha and although the stock was sold from the Nest Egg Portfolio at 24 EUR earlier this year, I’m still keeping an eye on

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This article was written by

The Investment Doctor profile picture

The Investment Doctor is a financial writer, highlighting European small-caps with a 5-7 year investment horizon. He strongly believes a portfolio should consist of a mixture of dividend and growth stocks.

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Comments (26)

banmate6 profile picture
@The Investment Doctor

Here is my MT investment.

date shares total_price $/share
8-Jul-2015 133 $3,600.95 $27.01 basis
14-Jun-2018 0.335 11.3 33.73 div
13-Jun-2019 1.389 $22.67 $16.32 div
15-Jun-2021 $40.42 div

Nothing special. Easily beaten by the S&P500. Not a big investment, but I tend to nibble and see what happens. I knew this one would be cyclical, but I've waited many long years. It kept up with inflation, but that's become an issue for the time being...and you'd think a commodity would do well here.

Your thesis seems sound. The USA and many advanced societies need infrastructure. Steel looms big here, pun intended.

I guess I should hold for eking out a bit more?
jorisderooij profile picture
cheap for a reason. They offer stock at cyclical lows, and buy back at cyclical highs. They are okay at staying in business, but are horrible capital allocators. Buyer beware.
Don't trust this management. The article does not mention the ~120million mandatorily convertible shares which negates the buyback. This conversion is coming due really soon. Selling the equity at dirt cheap prices a couple of years ago was a big scam they pulled on the shareholders with no justification for it at all. They will screw retail shareholders at the expense of their buddies/other deep pocketed investors... just as they did with this equity raise/dilution.
The Investment Doctor profile picture
@barbarika Care to elaborate on how the deep pocketed investors/buddies made money at the expense of the small shareholders?
@The Investment Doctor the capital raise was only opened by the investment banks running the capital raise (& management) to bondholders with deep pockets, the average retail shareholder was not given a chance (zero notice) to take part in this (very favorable terms) capital raise.. I am sure you will find this if you go back look at the detail on that capital raise they did under the guise of the pandemic. The pandemic has been a good excuse for pulling all sorts of schemes, especially shady management like this is very open to pull these shady schemes. One of the analysts on a subsequent quarterly earnings call pointed out the quite unnecessary need to do this capital raise (offered to a select few and on very good terms to the bondholders but bad for retail shareholders leading to 20% dilution !!) and the response was very "ho hum" and secretive from the management on the call. So I can only conclude that the select few who got to partake on this were friends/family/select few known to the mgmt.
The Investment Doctor profile picture
@barbarika Isn't that a little bit 'hindsight 20/20'? At that point they were expecting a $0.5B EBITDA in Q2 and the EBITDA wouldn't even have been sufficient to cover the sustaining capex, and let's not even talk about interest expenses.

I don't think you can blame a company for wanting to raise cash when times are tough. The share offering was only for $750M at $9.27 on May 12th. The share price traded BELOW the $9.27 level for the SUBSEQUENT THREE DAYS, up to a low of $7.58 a few days AFTER announcing and pricing the capital raise. So you actually had the opportunity to buy stock about 15% BELOW the capital raise price (the closing price on May 13th, the day after the pricing, was less than $8).
So if you really wanted in and buy more stock at $9.27, you actually had plenty of opportunity to do so on the open market.

I'm sorry, but smaller shareholders had plenty of opportunity to buy stock at or below the level the big boys paid. Sounds like sour grapes to me.
Isn't CLF a higher return probability Vs MT?
Stock fell 75% from 1/1/18 to 3/1/20 and Covid was not the reason. That must have been memorable for shareholders. A 30% rally from here and we're back to breakeven. (after tripling off the bottom.)

I'll look at it in January. Folks who bought in last half of '21 are under water here. The numbers do seem compelling.
marpy profile picture
Is trading at 1.5 x EBITDA for a reason. - Other than for the Mittal family, Its not a very shareholder friendly company. Share buy backs?? Big deal as all its done since it announced its buy backs is go south. The market does not care about share buy backs that are not accompanied by appropriate dividend increases. It MT's case, the 30 cent a share dividend = peanuts.
@marpy let me know if I’m thinking about this wrong, but doesn’t buying back shares also reduce the total expense from dividends then?

For example, if they end up buying back 40% of the shares by the end of next year, wouldn’t the total dividend payout be smaller as well?

In other words, if shares continue to be repurchased without a corresponding share price increase, the per share dividend stays the same but the total payout drops significantly.

Seems to me that the prudent strategy is to buy back shares until there’s share price appreciation at which point paying dividends becomes the more attractive option.

Obviously, I’m excluding investing in decarbonization and expansion as well as debt repayment but they aren’t neglecting either of those.
The Investment Doctor profile picture
@mmnelson3 You got it. Reducing the share count by 20% reduced the dividend payment (in dollars) by 20%.
marpy profile picture
@mmnelson3 Does not change the fact that, they are spending money on buy backs and so far it has put nothing in investors pockets as a result. With dividends, they are solid returns that investors can chose what to do with as in real money.
Great article. Would this in top 5 or 10 of your ideas? Your analysis is very good. Just want to judge where it fits in your scheme. TIA
The Investment Doctor profile picture
@worldly Unfortunately I can't buy everything. I used to own Arcelor, sold at roughly the current share price), but the tailwinds are stronger than I had anticipated (so in hindsight I never should have sold, so I was wrong there!).

The main issue is that we don't know when the tailwinds will become cyclical headwinds. And that will for sure happen, but thanks to the billions and billions of cash flow the balance sheet is now in a much, much better shape.

The only steelco i currently own is Algoma Steel. I have written some puts on CLF (which will all expire way out of the money), and I'm considering doing the same for ArcelorMittal (not sure if I'll pick the Amsterdam or NYSE listing yet).
I recently increased my position. Expect good returns going forward.
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