Cognor - Rebar Sector Keeps Up Momentum
Made-in-Poland reinforcing bars so far have been spared from the price downturn observed in recent weeks in the domestic steel market, and with rebar trading at PLN 4,200 a tonne while the cost to purchase a tonne of scrap feedstock hovers around PLN 1,800 this brings margins to a record PLN 2,200/t. After pushing maintenance downtime for its steel billet unit back to January 2022, Cognor is able to capitalize on the high prices of reinforcement steel to deliver another big quarter in Q3 2021 with over PLN 100 million EBITDA. After factoring in a second-quarter beat and the strong third-quarter outlook, we opt to upgrade our FY2021 full-year EBITDA forecast for Cognor from PLN 222m to PLN 354m. If our estimate is correct, after ending the year with low debt of 0.2x EBITDA, we believe Cognor might choose to distribute as much as 50% of 2021 net earnings as dividends next year to make DPS of PLN 0.70 and over 15% dividend yield. On a related note, Cognor is still due to make a distribution of PLN 0.15 per share (~3% Dyield) this coming October after going ex-dividend on September 28th. After upward revisions also to our financial forecasts for 2022 and 2023 to reflect expected gains from electricity price hedging below the current market level (i.e. at less than PLN 240/MWh), we once again raise our target price for COG from PLN 4.30 to PLN 5.05 per share, but we downgrade our view to accumulate after the share price rally of recent weeks.
Cognor Holding SA, formerly Cognor SA, is a Poland-based company that operates in the steel industry. The Company's activities are divided into four business segments: Scrap, Production, Distribution and Other. The Scrap division focuses on buying, processing, refining and selling of scrap metal and nonferrous scrap. The Production division is responsible for processing scrap metal into steel billets, as well as converting steel billets and nonferrous scrap into finished products. The Distribution division sells various commodities, such as steel products, steel and nonferrous scrap and steel billets. The Other division includes materials recycling, among others. The Company's products range comprises metal bars, steel sheet, plates, pipes and rods, as well as sheet zinc and tin plates, among others. It operates through a number of subsidiaries, such as Cognor Blachy Dachowe SA, Zlomrex Metal Sp z o o and Huta Stali Jakosciowych SA. The Company is controlled by PS Holdco Sp z o o.
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