Long/Short Equity, Value
Contributor Since 2011
Based in Omaha, I am a professional real estate developer with 25 years of industry experience. Real estate analysis typically centers upon returns on capital and earnings yields and I tend to look at investments through a similar lens. My articles usually incorporate discounted cash flow analysis. I have completed the Ben Graham Value Investment program at the Ivey College of Business, London, Ontario. Arsenal FC supporter. www.AlchemyDevelopment.com, www.RobertHancockCo.com
Steel stocks have rallied in recent weeks as anti-dumping measures have been announced to level the playing field between European and NAFTA steel producers and the hopelessly state-dependent and debt-fuelled Chinese steel sector.
Yesterday, Lakshmi Mittal turned 66. I decided to look into his world now that this 21st century Carnegie has reached pensioner status. While Mr. Mittal may be able to buy a discounted movie ticket now, he certainly won't be needing his senior citizen checks. His birthday present from governments has been much larger: protectionist tariffs in a dangerously over-supplied market.
So what's ArcelorMittal (MT) up to these days?
Well, if you believe in the possibility of a steel rebound, you can follow Lakshmi Mittal's wallet.
In February, ArcelorMittal completed a rights offering to existing shareholders of about 1.26 billion shares. The offering raised € 2.75 billion. The Mittal family controls 37.4% of ArcelorMittal, and they duly invested nearly a billion Euros in the company. This was a delightful move for the family, as the stock currently trades just under €4.50.
It's a massive vote of confidence. The €2.75 billion will be used to pay off debt. Tender offers have already been issued (although takers have been few - not surprising, given the yields of between 5% and 9.85%).
MT has performed well since the rights issue. The stock is up 25% since late February. Meanwhile AK Steel (AKS) and US Steel (X) are up over 100% during the same period. It seems apparent that investors realize they have just been diluted by 41%.
Debt has been reduced from $23.6 billion to $17.3 billion at the end of March. The further reduction from the tender offers will bring debt levels below $15 billion. Book value is over $9 per share. I suppose that should be taken with some grains of salt as more impairment charges are likely.
I am going to continue researching MT. Frankly, I am not able to articulate the condition of MT in relation to AK, X, and others. In the meantime, happy birthday Lakshmi Mittal.
Note: ArcelorMittal's US ADR trades at $4.99 at the time of this post. ArcelorMittal had $63.5 billion in sales in 2015 with EBITDA of $5.2 billion. By comparison, in 2011 sales hit $94 billion with $10.5 billion in EBITDA.