Friday, 14 February 2014

ThyssenKrupp - more complex than the market appears to think

Numbers from the German steel/related products company ThyssenKrupp are always complex.  As I noted in my last posting on the stock:

'it is complex'

The initial view of the numbers was positive with this view from Bloomberg being pretty typical:

'Adjusted earnings from continuing operations before interest and taxes more than doubled to 247 million euros ($338 million) in the fiscal first quarter ended in December, exceeding the 218.7 million-euro average of 10 estimates compiled by Bloomberg...“We started the new fiscal year with a good first quarter without help from the economy,” Chief Executive Officer Heinrich Hiesinger said in the statement'

And the share responded well to this, rising above Euro20 for the first time in the last year

Of course, it remains 'complex'.  Targets are being achieved, but... the EBT line (so after interest and related payments) the company remains loss-making...

...and this is due to the still high gearing (despite a recent capital increase).

Clearly a move to free cash flow breakeven will help here, but it is clear that the company remains highly financially and operationally geared.  Clearly the capital increase, sale of the stainless steel jv and America steel interests and internal cost-cutting focus is having a positive impact, but how much is priced in?

Using the ThyssenKrupp Q1 numbers I extrapolated trading profitability on a sum-of-the-parts basis.  The company does have some solid and profitable divisions (Elevators, Industrial Solutions for example) but even placing these divisions on a premium valuation still gave me a SOTP valuation, at best, in the Euro14bns versus the current EV of nearly Euro16bn. 

Clearly numbers can get better or worse depending on many internal and external criteria.  I noted last time that even with an activist investor on board, ThyssenKrupp would not be a straight line - and that has proved to be the case.  At today's share price the valuation appears to discount a lot.  Maybe like elements of the European/global stock markets?

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