Paul,
Re: Ternium (TX)
Message 23120941
Merrill Lynch out with a 37-page report saying this is the steel company to own. Price target of $38, heavily discounted from their $53 NAV based on 10-year discounted cash flow, after adding all kinds of risk factors for latam, blah-blah-blah. This one is going higher.
fp
Initiating coverage with Buy,
PO US$38/ADR
Total return potential of 48% in 12-mth, top pick in Latam Steels
Our price objective of US$38/ADR was set considering a target multiple of 4.5x
2007E EV/EBITDA which represents 71% to company’s NAV of US$53/ADR
estimated through 10Y DCF. Stock would trade at 17% discount to global average
at the target multiple. Ternium is our new Top Pick among Latam Steels in the
place of Usiminas. (USSPF, Buy rating, C-1-8 and Price objective of R$106/sh).
Highly profitable steel company at 37% discount to Global
Fundamentals do not appear to justify this significant discount on 2007E
EV/EBITDA: (1) Ternium should generate EBITDA per ton of US$225 or 17%
above ML’s global average; (2) 2007E EBITDA margin 1.6x global average; (3)
FCF yield of 14% in 2007; (4) has only one class of share; (5) listed ADR in NYSE
and (6) well recognized controlling group (Techint). We believe that sooner rather
than later investors will recognize this discrepancy.
It is also a growth play
Based on approved projects Ternium’s production will grow 5% pa up to 2009, but
the company’s portfolio of assets would easily allow it to add another 4-6mn tons
pa of steel capacity (34-54% on current capacity) around 2010-2012. These
projects would be highly profitable as they are all brownfields (lower capex/ton).
Well diversified assets base provides low margins volatility
We estimate that 80% of Ternium’s shipments are to domestic Mexican,
Venezuelan and Argentinean market, steel consumption CAGR (02-05) in these
markets was 2.4x Global and Latam steel consumption growth. |
