Stalprodukt - Reaping Rewards of Metals Rally
Stalprodukt is set to deliver strong 2021 first-half earnings, driven by rising prices of electrical steels, underpinned by growing investment in renewable energy and electric vehicle production and charging infrastructure. On top of that, world zinc markets lately have shifted sharply upwards amid expectations of a recovery in the automotive sector (transport accounts for 25% of overall zinc use) and rising investment in infrastructure (over 50% of total use). Stalprodukt closed its last zinc mine in December 2020 after it reached the end of its useful life, but the ores extracted up until the closure will continue to provide vertical integration benefits until mid-2021 (ore processing facilities are to stay operational until the summer). Last year, Stalprodukt also completed an electrolysis tank house that boosted its zinc smelting capacity by 13% while reducing smelter costs (through the elimination of 75 FTEs and a 2% reduction in electricity use). Having completed a five-year capacity-building process, and ended FY2020 with cash per share of PLN 50, at the beginning of May 2021 Stalprodukt is likely to declare its first dividend in a while (we expect DPS of PLN 11.66). STP stock has soared 70% since we issued our buy call in early December 2020, but we still see upside potential of at least 20%. After revising our models upwards to assume higher 2021 sales volumes for zinc and higher average prices for metals and electrical steels, we keep our buy call for STP with the target price raised from PLN 370.99 to PLN 397.79.
Stalprodukt S.A. is a manufacturer and exporter of highly processed steel products such as electrical transformer sheets and strips, cold formed profiles and tubes, hot- and cold rolled sheets and strips, road safety barriers and toroidal cores. Co. also possesses its own well-developed distribution network of metallurgical products. It consists of wholesale warehouses and offices in several cities in the territory of Poland. Co.'s warehouses managed by Stalprodukt-Centrostal Krakow sp. z o.o. With regard to IT applications, Co. remains in the broadly understood metallurgical branch.
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