August 18, 2022

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Acerinoxis closely linked to the expansion of global economies, which means the stock was hit...


is closely linked to the expansion of global economies, which means the stock was hit hard by slumping demand during the height of the pandemic.

The Madrid-based company, which makes and distributes hot- and cold-rolled stainless steel used in the aerospace and automotive industries and in household goods such as washing machines, was operating at just 65% capacity in the second quarter of 2020. Its shares (ticker: ACX.Spain) fell 32% from December 2019 to October 2020.

The stock has bounced back this year, gaining 14%, to a recent 10.30 euros (about $11.64). Last month, Acerinox, which markets its products in Europe, Asia, and the Americas, flagged a jump in demand for alloys and stainless steel. Acerinox says it’s on course for its strongest annual results in its 51-year history, despite rising energy prices.

The pickup in demand, which analysts predict will be sustained well into 2022, isn’t the only catalyst for growth. The company’s $587 million acquisition of German-based alloy maker VDM Metals two years ago is performing ahead of expectations, which Bastian Synagowitz, an analyst at Deutsche Bank, predicts will lead to a continuation of buybacks or extra dividends. He has a price target of €17 on Acerinox.

Although Acerinox hasn’t announced plans for its loss-making Malaysian unit, there has been speculation about a divestiture. A sale would boost the stock to €20, predicts Franco German broker Oddo BHF. Acerinox declined to comment.

Iñigo Recio Pascual, an analyst at Spain’s GVC Gaesco, tells Barron’s that “order books suggest that, at least in the first part of [2022], the stainless steel market will remain strong. Inventories still remain at reasonable levels.” He adds that another growth driver is price negotiations with customers, particularly in the auto sector, for annual contracts, “with good prospects for 2022, especially in Europe, as during 2021 price increases have not been passed on to them.”

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Acerinox has a market value of €2.7 billion, with production sites in the U.S., Germany, Spain, Malaysia, and South Africa. It fetches a low 5.1 times this year’s expected earnings, in line with its peers.

In 2020, Acerinox posted revenue of €4.6 billion, down from €4.7 billion in the prior year. Nonetheless, profit was €49 million, versus a €60 million loss in 2019. The company credited this to cost-cutting. In this year’s first nine months, net profit rose to €373 million from €31 million in the corresponding period a year ago. Revenue climbed 38%, to €4.77 billion.

Steel demand depends on overall GDP growth, with autos and household appliances key. In 2020, companies held steel inventories to a minimum. “Demand has come back with strength,” says analyst Pascual. Despite a fourth wave of Covid-19, major economies such as Germany and the U.S. are resisting a return to growth-sapping restrictions.

Recent developments in China also might help Acerinox. In April, under pressure to create a more level playing field, Beijing agreed to remove a 13% value-added-tax rebate for steel exports, which will increase costs for Chinese producers. Acerinox doesn’t sell directly in China, but that nation accounts for 50% of global steel consumption and production, so its influence on demand and production is important for overall prices, analysts say.

In a quarterly update in November, Acerinox’s chief executive officer, Bernardo Velazquez Herreros, said: “We estimate that Ebitda [earnings before interest, taxes, depreciation, and amortization] will improve slightly from the third to the fourth quarter, due to strong demand and low inventory levels. If these forecasts prove correct, we will achieve our best results ever.”

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Write to Rupert Steiner at [email protected]