Outokumpu (Buy, TP: EUR7.70) - Not as bad as it looks
We have upgraded Outokumpu to BUY (HOLD) following the 15% share price decline on the weak Q4 results and Q1 outlook. We expect increased key input costs to be absorbed by the stainless market in 2018, leading to margin recovery from Q2 onwards. We consider 7.5x our 2018e EBITDA of EUR610m to be a fair valuation and reiterate our EUR7.7 target price.Outokumpu is organized into the following five business areas: Coil Europe, Middle East and Africa, which consists of stainless operations as well as ferrochrome production in Europe; Coil Americas, which produces standard austenitic and ferritic grades as well as tailored products; APAC, which includes cold rolling facility and coil and plate service center in China, as well as a coil service center in Australia; Quarto Plate, which is comprised of the quarto plate production facilities in Sweden and in the U.S.; as well as Long Products, in which its products are used in a range of applications such as springs, wires, surgical equipment, automotive parts and construction.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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