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ARCELOR MITTAL: 2Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q’20 vs. 2Q’19 Results:
Sales: $ 10.976 Bn (-43.1% vs. -42.3% BS(e));
EBITDA: $ 707.0 M (-54.5% vs. -69.5% BS(e) and -69.0% consensus);
Net Profit: $ -559.0 M ($ -447.0 M in 1H'19 vs. $ -749.0 M BS(e));
1H’20 vs. 1H’19 Results:
Sales: $ 25.82 Bn (-32.9% vs. -32.5% BS(e));
EBITDA: $ 1.674 Bn (-47.8% vs. -55.0% BS(e) and -54.8% consensus);
Net Profit: $ -1.679.0 M ($ -33.0 M in 1H'19 vs. $ -1.869.0 M BS(e)).

The results were better than we and the consensus expected in EBITDA, which reached US$ 707 M (vs. $ 475 M BS(e) and $ 482 M consensus). This was a result of the better cost performance of the steel business in Europe (~40% of EBITDA) and Brazil (~20% EBITDA), as well as the Mining division (~20% EBITDA).
As for the outlook, the company states that “the speed and trajectory of demand recovery remains uncertain”, but that it is beginning to see signs of recovery from “exceptionally low levels”.
Net debt came in at $ 7.85 Bn (vs. $ 9.5 Bn as of 31 March’20), benefiting from the $~2 Bn capital increase. Without this capital increase, debt would have stood at $~9.85 Bn, which would have meant $~350 M of cash being burned on the quarter, and this would have come from working capital (rising by around $ 400 M in 2Q’20). The company maintains its target of $7 Bn of net debt (no specific date given). As for liquidity, MTS has $11.2 Bn vs. $ 3.6 Bn of maturities through 2022.
The 2Q’20 results are clearly better than expected (thanks to costs), although the outlook given by the company shows low visibility that could neutralise a potentially positive impact from the results release. We think the stock is cheap (pricing in recurring EBITDA of $~5.5 Bn vs. $ 6 Bn BS(e) and $~7.5 Bn over the last 10 years), although we think the market will likely need more visibility to price this in. We expect more details to be given in the conference call at 15:30 (CET). BUY. T.P. € 11.50/sh. (upside +19.38%).