José Benito de Vega | Acerinox enjoyed a very positive stock market evolution in the first nine months of the year compared to the Ibex 35 (+8.8% compared to -6.3% for the index up to 1 October). Since then its shares have corrected strongly, losing 32%, leaving its relative performance for the year in negative (-28% compared to -12% for the Ibex). This sharp correction has been driven by doubts about the situation of the sector in Europe, in an environment of process weaker than expected and fears about an economic slowdown, as well as the company´s cautious expectations for the fourth quarter of 2018.
Acerinox is one of the main stainless steel producers in the world. It is one of the most efficient companies at a global level, with a geographical diversification which allows it to cover the three main global markets: the US, Europe and Asia. The strength in the US market, where Acerinox generates almost 50% of its incomes, has been able to compensate for the weakness in Europe, where the increase in imports has brought strong falls in the base price, which is now below the break even point.
We believe that the weakness in the fourth quarter 2018 will be temporary and that 2019 will be a positive year for Acerinox, given that the strength will continue in the US while the definitive safeguard measures in Europe will bring a reduction in imports and a recovery in prices. Since the beginning of October the share price of Acerinox has fallen more than 30%. Currently it lists with multiples well below its historic average: EV/Ebitda for 2019 of 6X compared to the historic average of 8.6X or P/VC of 1.1X compared to the historic average of 1.5X. The strong fall in the share price reflects the market fear of a cycle inflection and the evolution of prices in both Europe and Indonesia.
We believe that, although the fear of an economic slowdown could weigh on the evolution of the share price, there are also a series of catalysts which could drive the share price upwards: 1) the European Commission proposal on definitive safeguard measures; 2) the shareholder remuneration policy in which there is a margin for improvement (the company could even announce a share buy back given the low levels of the share price, close to their book value); 3) improved results in first quarter 2019. Because of all of this, we would take advantage of the current pessimistic environment and discount in the share price to construct an investment position with a view to the medium/long term, without losing sight of the fact that we are dealing with a cyclical share, not exempt from volatility at moments of doubts about the macroeconomic environment.