EUR 100.00 For Business Accounts Only

ARCELOR MITTAL: 4Q’19 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'19 vs. 4Q'18 Results
Sales: US$ 15.514 Bn (-15.3% vs. -12.9% expected and -13.0% expected by the market consensus);
EBITDA: US$ 925.0 M (-52.6% vs. -57.0% expected and -56.1% expected by the market consensus);
Net Profit: US$ -1.882.0 M (US$ 5.149 Bn in FY2018 vs. US$ -29.0 M expected by the market consensus);
FY2019 vs. FY2018 Results
Sales: US$ 70.615 Bn (-7.1% vs. -6.5% expected and -6.6% expected by the market consensus);
EBITDA: US$ 5.195 Bn (-49.4% vs. -50.2% expected and -50.1% expected by the market consensus);
Net Profit: US$ -2.454.0 M (US$ 1.193 Bn in FY2018 vs. US$ -601.0 M expected by the market consensus);

The 4Q’19 Results came in better than expected on the operating level thanks to the US (25% EBITDA), Mining (25%) and to a lesser extent Brazil (25%). The steel EBITDA/Mt ratio came in at US$ 32.00, vs. US$ 28.00 BS(e). The bottom line of the P&L statement is affected by impairments in its fixed assets in the US and South Africa and also by negative one-offs stemming from inventory adjustments in the US and Europe. Both have been affected by low steel prices in these regions, although they do not represent any cash outflows.
Net debt came in at US$ 9.3 Bn, clearly below expectations (US$ 10.059 Bn BS(e) and ~10.1 Bn consensus) thanks to the good working capital performance, with a recovery of US$ 2.6 Bn on the quarter (vs. US$ 1.4 Bn initially expected by MTS). In this regard, the company expects to end 2020 with around US$ 7 Bn of NFD, far below our expectations and those of the consensus (US$ ~9.4 Bn and ~9.3 Bn, respectively). To hit such positive levels, the company forecast cash needs of US$~4.5 Bn (vs. US$ 5 Bn in 2019; due to lower capex), an additional cost reduction of US$~1 Bn (1.5% of the total) and an improvement of US$ 1 Bn in working capital (“if market conditions remain at the current levels”).
On another note, the operating prospects unveiled are positive, with +1%/+2% growth in global apparent demand (vs. +1.1% in 2019) but especially favourable in its main markets (Brazil, the US and Europe), where the company foresees in general ~+2% on average (vs. -1% in 2019 BS(e)). Furthermore, the group sees a positive price environment, underpinned by this favourable performance of demand and by the low inventory levels.
Lastly, the company raised its DPS by +50% to US$ 0.30 vs. 0.20 expected and US$ 0.22 consensus. Thus, we believe that the operating 4Q’19 performance, the good newsflow in debt and the positive prospects should fuel the share price. BUY. Target Price: € 18.50/sh. (upside 29.10%)