Wednesday, August 29, 2018

Can Acerniox Deliver A Stronger Second Half?

One of the strongest bullish arguments for Acerinox (OTCPK:ANIOY) has been that the company’s strong leverage to the U.S. market (40% of production capacity) would significantly improve its pricing outlook and shield it from at least some of the risks of import competition in markets like Europe. Although that has been the case, and Acerinox has outperformed other stainless steel names like Outokumpu (OTCPK:OUTKY) and Aperam (OTC:APEMY), as well as other European steel names like voestalpine (OTCPK:VLPNY) and ArcelorMittal (MT) (which is really more of a global steel company), the shares are still down a bit from my last update and flat for the year as my worries about playing a mature steel cycle have apparently come to pass.

As is the case with voestalpine, it’s hard to recommend Acerinox shares now even though they do look meaningfully undervalued. European steel prices should recover in the second half of the year, but “should” is not a guarantee, and it’s tough to see what’s going to drive a significantly better outlook for these companies. While I do thing the value argument here is legitimate, and peak EBITDA could still be some distance away, investors need to at least consider the risk that Acerinox turns into a value trap.

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Can Acerniox Deliver A Stronger Second Half?

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