Mobile And Lulea Projects Will Expand Special Steel Capabilities

Key Takeaways

• SSAB's investment in production capacity and focus on high-margin products is set to boost future revenues and improve margins.
  
• Advancing fossil-free steel production and flexible U.S. operations position SSAB to capitalize on increased demand and sustainable solutions.
  
• Vulnerability to labor disruptions and tariffs, coupled with declining product prices and high capital expenditures, poses potential risks to earnings and liquidity.

Catalysts

Engages in the production and sale of steel products in Sweden, Finland, the Rest of Europe, the United States, and internationally.

• A key catalyst for SSAB is the investment in transforming the Mobile production facility to increase the production capacity of advanced special steels, which is expected to meet high demand and command premium pricing, potentially boosting future revenues and margins.
  
• The strong recovery in the U.S. plate market, coupled with SSAB's flexible production capabilities in the U.S., positions the company to benefit from increased local demand and higher prices, likely leading to improved earnings in the region.
  
• The commitment to develop the Lulea mini-mill project, supported by a flexible financing package, is anticipated to enhance SSAB's production capabilities and product offerings, fostering future revenue growth and operational efficiency.
  
• SSAB is advancing in fossil-free steel production, with new partnerships and market interest, positioning the company to meet growing demand for sustainable steel solutions, potentially increasing revenues and margins.
  
• SSAB's strategy to focus more on premium and high-margin products, such as cold-rolled and galvanized steel for the automotive industry, is expected to improve the revenue mix and bolster net margins over time.

SSAB Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SSAB's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 6.9% in 3 years time.
• Analysts expect earnings to reach SEK 7.7 billion (and earnings per share of SEK 7.64) by about May 2028, up from SEK 5.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK10.9 billion in earnings, and the most bearish expecting SEK4.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, down from 12.0x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 12.2x.
• 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 6.16%, as per the Simply Wall St company report.

SSAB Future Earnings Per Share Growth

Risks

• A political strike in Finland cost SSAB roughly SEK 120 million, indicating vulnerability to labor disruptions, which could impact net margins due to unexpected expenses.
  
• Tariffs pose ongoing uncertainty for the company, particularly with dependence on exports and free trade; long-term consequences could potentially affect revenue and overall earnings.
  
• Lower product prices compared to the previous year resulted in declining earnings, notably affecting Americas with a 25% price drop and contributing to a significant negative impact on EBIT.
  
• The financing package for the Lulea mini-mill project, while secured, indicates significant future capital expenditures, which could strain cash flow and affect future capital returns to shareholders.
  
• A significant decrease in net cash flow compared to the previous year, driven by lower earnings and a large payout on raw material invoices, suggests potential liquidity risk if adverse market conditions persist.

Valuation

• The analysts have a consensus price target of SEK70.846 for SSAB 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 SEK97.0, and the most bearish reporting a price target of just SEK51.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK111.3 billion, earnings will come to SEK7.7 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of SEK61.0, the analyst price target of SEK70.85 is 13.9% 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.