MT may report a operating loss But a positive cash flow.4th quarter is going to be tough for the steel companies with European business.MT will be very hard pressed to maintain its current dividend.MT may touch its low of the year this quarter.
UBS report 10-31-12
Q3FY12 results in line with consensus but net debt increase disappoints Sales at US$19.7bn in line with consensus estimate of US$20bn (UBSe US$21bn). EBITDA at US$1.3bn met Street and our estimates. However, net debt increased by US$1.2bn q/q to US$23.2bn due to negative operating cash flow, incl. NWC increase, which is likely to be taken negatively by the market.
Margin squeeze in Steel and Mining and neg one-off’s due to plant closures FCE and FCA recorded one-off charges of US$130mn related to the permanent
closure of the liquid phase in Florange (France) and US$98mn mainly associated with the closure of facilities in Liege, Belgium. FCA took a hit of US$72m due to one time labour cost from a new US labour contract. Mining EBITDA down 28% q/q due to early negative price impact, especially from iron ore, resulting from shorter iron ore contracts, in our view.
Outlook for FY12 in line, dividend proposal for FY12 cut by 70%
Except the dividend cut, we found no major surprises in ArcelorMittal’s FY12 guidance. We see the dividend cut for FY13 to $0.2 (from $0.75) positive as it could save ~$850mn in cash. MT expects EBITDA to come in at approx. $7bn in FY12 - in line with street expectations. The Group still expects iron ore shipments to be 10% ahead of last year and net debt at $22bn by year end.
Valuation: Maintain Buy at a Price Target of €15/US$19
Valuation looks attractive as the stock trades at a 2013e PE multiple of 11.2x and EV/EBITDA multiple of 4.9x. Stock prices in a terminal growth rate of -14%, and only US$65/t long-term EBITDA in the steel divisions - too harsh in our view. We derive out PT by using both DCF and 1-y fwd P/E multiple.