Efficiency Initiatives And PCI Project Will Modernize Operations

Key Takeaways

• Focus on operational excellence and cost reduction initiatives could enhance net margins and earnings, leveraging stable volumes and quality improvements.
  
• Strategic investments and advocacy for trade protections may bolster productivity, market presence, and long-term revenue growth.
  
• Challenging market conditions and unfair competition may impact Usiminas's revenue, margins, and long-term growth amidst high imports and economic uncertainties.

Catalysts

Manufactures and markets flat steel products in Brazil and internationally.

• Usiminas is focused on operational excellence and cost reduction, including ongoing efficiency initiatives, which should enhance net margins and overall earnings.
  
• The company is expecting stable volumes and price improvements due to a higher quality of extracted mining materials, potentially increasing revenue from core activities.
  
• Strategic investment in the PCI project aims to reduce dependency on coke, projecting significant cost savings and improvement in net margins starting 2026.
  
• Despite current market challenges, Usiminas maintains a robust investment pipeline aimed at modernizing operations, potentially improving productivity and long-term earnings.
  
• Usiminas is actively lobbying for protective measures against unfair steel import practices, which, if successful, could stabilize domestic competitive conditions, enhancing revenue and market presence.

Usinas Siderúrgicas de Minas Gerais Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Usinas Siderúrgicas de Minas Gerais's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 3.8% in 3 years time.
• Analysts expect earnings to reach R$1.1 billion (and earnings per share of R$1.02) by about May 2028, up from R$140.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$1.3 billion in earnings, and the most bearish expecting R$508.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, down from 50.2x today. This future PE is greater than the current PE for the BR Metals and Mining industry at 7.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 23.12%, as per the Simply Wall St company report.

Usinas Siderúrgicas de Minas Gerais Future Earnings Per Share Growth

Risks

• The challenging and uncertain international market, particularly due to high steel imports and unfair competitive conditions, may impact Usiminas’s future revenues and net margins.
  
• The lack of effective measures to create fair competition and the presence of subsidized steel imports in Brazil could undermine the sustainability of the domestic steel industry, affecting Usiminas's earnings.
  
• Increased steel imports in Brazil, especially under unfair competition conditions, could affect domestic consumption and revenue growth for Usiminas.
  
• High interest rates and economic uncertainties may negatively influence domestic demand for steel, impacting Usiminas’s sales volume and profit margins.
  
• Potential future adjustments or reductions in capital investments due to competitive pressures from subsidized imports might hinder Usiminas’s long-term revenue growth and operational efficiency.

Valuation

• The analysts have a consensus price target of R$7.164 for Usinas Siderúrgicas de Minas Gerais based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$10.0, and the most bearish reporting a price target of just R$5.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$29.0 billion, earnings will come to R$1.1 billion, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 23.1%.
  
• Given the current share price of R$5.73, the analyst price target of R$7.16 is 20.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.