Erdemir (EREGL TI) - Resilient operations in 2Q20: Maintain Buy
Backed by updated macro-indicator forecasts and higher sales volume assumptions, we raise our 12M TP (based on a weighted average of DCF and international peer multiples, assumptions unchanged) by 17% to TRY12.13. Despite the stronger flat steel pricing, we expect steel making margins to remain moderate in the short run due to a sharp increase in iron ore prices. However, we keep our constructive view on Erdemir as it offers an appealing risk/reward profile based on its strong balance sheet and hard currency dominated cash generation capability.
Erdemir reported net income of TRY568m in 2Q20, above our estimate and RT consensus. The divergence came from a TRY135m one-off gain related to a provision reversal. Operationally, 2Q20 EBITDA of TRY1.3b came in-line with our estimate and RT consensus. In 2Q20, flat steel shipments was up by 11% q-q, while long steel sales declined by 30% q-q.
Eregli Demir Ve Celik Fabrikalari is engaged in the production of iron and steel rolled products, alloyed and non-alloyed iron, steel and pig iron castings, cast and pressed products, coke and their by-products.
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