Morgan Stanley | The market is assuming normalised profits and not extrapolating the extraordinary profits in Q1 2022 due to macroeconomic uncertainties. For the time being, we remain neutral on the sector and are changing our order of preference.
Aperam has been the one which has most lagged behind out of all the steel stocks YTD. We believe the recent derating is exaggerated and its exposure to Europe clearly compensates that. In addition, in our view, the compression of the multiple seems exaggerated and its exposure to Europe more than offsets this. Whatsmore, reinvestment and accumulation of working capital point to a resilience in profits and EBITDA higher than the conversion of FCF as the cycle normalises.
In contrast Acerinox has already benefitted from its exposure to the US (upward revisions to profits) and the derating it has experienced is modest. Furthermore, we see greater pressure on imports in the US market in H2’22. This could negatively impact Acerinox’s margins. For that reason we are changing our tactical preference to Aperam (from EW to OW) over Acerinox (from OW to EW).
We lower our stance on Acerinox to Equalweight, Target Price from 11,70 to 13,30 euros/share.
