Ternium: Steel Solid Results

Steel companies have been hit hard in 2008 and 2009. Most companies have put up negative cash flow numbers, with only a few that have successfully made it through the two years without burning cash. Our investment in Ternium was based on the analysis that the company is one of the best operating steel companies in South America and the world. The 2009 Q4 results again showed why we believe them to be one of the best. Some highlights from the report:

– Shipments increased by 7% compared to Q4 ’08. Compared to Q3 ’09, shipments were down 2%. A strong showing that demand for production has stablized
– EBITDA per tons increased 12%, compared to Q4 ’08. The company reported $177/ton EBITDA, extremely strong results compared to what the rest of the industry is showing.
– The company had EBITDA of $316 million. The company used the cash to pay off $121 million of debt in the quarter.
– In 2009 the company had cash flows of $953 million. Compared to the current EV of $7B, that is a little more than 7x of cash flow.

One of the metrics used in track steel companies’ performance is EBITDA per ton. The companies that are low-cost producers and have strong production volume usually show the top ratio. We can see a comparison of some of the major steel companies’ EBITDA/ton ratios at the Nerds of Steel earnings spreadsheet. Ternium has shown dominant and consistent performance on this ratio. It has ranked at the top with Posco, Buffett’s favorite steel company, and Gerdau. Ternium’s strong cash flow, low-cost producer, and located in one of the rapidly growing regions makes it an extremely compelling steel producer at current prices.

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