Svenska SSAB sees the shares soar after a record year
Making money in the markets during the first half of this year will be about commodities and commodities. This is where the price measure is. Just look at the share price of the Swedish steel producer SSAB (SWE: SSAB). It is the largest manufacturer of sheet steel in Scandinavia and covers blast furnaces, coking, steel mills, mills and coating under one and the same umbrella.
SSAB celebrated exactly what is called a record year, which is impressive considering that Europe was still hammered by the pandemic of 2021. It was the best in the company’s history, with record results in all its divisions. Operating profit for the fourth quarter rose to SEK 6.96 billion and it ended with a net cash of SEK 2.3 billion, which means that the company is now debt-free.
SSAB told investors that the outlook for the first quarter of 2022 was “fundamentally positive”, although somewhat dampened by a lack of components at several of its customers. It acknowledged that Covid was still continuing to cause some problems with its operations and that it had introduced further measures to alleviate this in recent months.
The steel market looks fantastic
The steel market looks good in 2022. SSAB estimates that demand will remain good, even if Covid continues to create certain bottlenecks in the supply chains. Global demand for high-strength steel remains consistent and we do not expect this to change any time soon. Steel deliveries from Sweden are expected to increase, and SSAB reports that they expect deliveries from its Special Steels division to be higher, as are its dedicated European and North American operations.
According to World Steel Association, global crude steel production in the first 11 months of 2021 increased by 4.5% compared to the same period in 2020. Chinese steel production has decreased, we believe largely due to the pandemic in that country. While Chinese mills had dominated global steel production, Chinese manufacturing is experiencing all sorts of problems at the moment, creating opportunities for steelmakers outside China.
The SSAB share slightly lower than the most recent peak in March, still cheap
SSAB said that it sees demand in Europe due to a lack of components, especially in the automotive industry. Prices of steel sheet in Europe have been stable, while we in the US have seen a certain increase in the market for heavy sheet metal.
The SSAB share was from its latest peak levels at the time of writing. We had seen a lot of momentum in the stock during the winter months. The share had shot SEK 75 last month before falling back to around SEK 62-63. Long-term SSAB investors have been looking at a fairly straight growth line from around January 2021 when the share broke out in a range of SEK 25-30. Institutional investors, especially in Scandinavia, are still very bullish on this, according to Stockopedia. Analysts currently have a consensus target price of SEK 71.82. Consensus forecasts for net profit (December 2022) are SEK 13.3 billion.
The 12-month forecast PE ratio still looks good, at 5.7x despite the share price rises. Headline figures show solid revenue growth since 2016, and we do not see why that would change any time soon. The company looks very profitable, with solid cash flows and really excellent figures for 2021. The results for the first quarter will be published on April 26 (09.30 CET) and we do not expect SSAB to disappoint anyone.
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