Gerdua (GGB) to Repurchase 30M ADRs, Lifts Price Up - Analyst Blog
Brazilian steel producer, Gerdau S.A. (GGB), recently announced a buyback program of approximately 30 million American Depositary Receipts (“ADR”). The news lifted investors’ sentiments, driving an increase of roughly 5.5% in the company’s ADR price at the end of the trading session on Jan 19.
As disclosed, Gerdau will repurchase the authorized number of ADRs for satisfying the company’s Long-Term Incentive scheme. Also, these ADRs can be held in treasury or cancelled or used for subsequent sale in the market. For the program, the company will be utilizing cash from its existing profit reserves.
Gerdau will have a three-month period, till Apr 17, 2015, to complete the authorized repurchase program.
We believe such buyback programs are reflective of Gerdau’s commitment to return value to its shareholders as well as its strong cash position. Exiting third-quarter 2014, the company had cash and cash equivalents of approximately R$2.9 billion (US$1.2 billion). Further, in the nine months ended Sep 2014, the company returned R$339 million (US$149 million) to its shareholders in the form of dividends and interest on equity.
We believe the prevailing global uncertainties will adversely impact the growth prospects of the steel industry worldwide. Sluggish growth in China will hurt the export demand of many countries, while lower domestic demand will be a prime reason for poor demand in the Brazilian steel market.
With a market capitalization of $6.2 billion, Gerdau currently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the steel industry include LB Foster Co. (FSTR), Mechel OAO (MTL) and RTI International Metals, Inc. (RTI). All these carry a Zacks Rank #2 (Buy).
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