EUR 85.85 For Business Accounts Only

SSAB (Buy, TP: SEK116.00) - Cash glut and green transition

With the stock trading at a 2023e P/E of c6x, and a growing net cash position (SEK21/share at end-2023e), it looks as though the market is expecting a sharp earnings deterioration. However, given SSAB’s strong market positions in the Americas and the Speciality business, which are underpinned by convincing mega-trends, we continue to disagree with this view. We reiterate our BUY and have raised our target price to SEK116 (112) on lowered risk and raised estimates. Set for another strong earnings quarter. Due to higher volumes and quarterly contract prices for SSAB Europe, we expect Q2 earnings to be up from the previous two quarters. We forecast much improved sequential profits for SSAB Europe and continued high earnings for SSAB Americas and SSAB Special Steels. For the group, we forecast Q2 EBITDA of cSEK6.3bn. The results are due at 07:30 CET on 21 July. 2023–2024e EBITDA raised by 6–4%. Lately, SSAB’s earnings drivers have developed more positively than we had previously assumed, and we have taken a somewhat more positive view on 2023–2024e. Although European spot steel prices are down by 10–15% since April, this is mitigated by lower input costs. At the same time, favourable heavy-plate prices have remained stable for SSAB Americas, while we believe lucrative prices for SSAB Special Steels have also remained relatively stable. In addition, we stress the positive impact from a weaker SEK, as a large part of the production base is in Sweden and invoiced in EUR. Cash distributions and transformational capex. In addition to a healthy earnings outlook, we expect a 2023 net cash position of SEK21/share. While SSAB’s longer-term cash flows will be heavily affected by cSEK50bn of transformational ‘green’ investments until 2030e, we still see plenty of room for major cash distributions alongside its ambitious investment plans. As well as generous dividends, we believe SSAB will start buying back shares by the end of this year. BUY reiterated, and target price raised to SEK116. Yet again, we have turned increasingly positive on the Americas and the special steel business, which we expect to boost group EBITDA. As our DCF model suggests an equity value of cSEK170/share, any buybacks not included in our model would be highly value-accretive, in our view.