14 September 2017Reading time: 3 minutes

ArcelorMittal (MT) was formed after a merger between Arcelor and Mittal in 2006. With a market capitalization of EUR 22.79 billion it now is the largest steel company in the world.


ArcelorMittal stopped paying a dividend to its shareholders in 2016, in order to get its balance sheet in shape. Prior the company’s leverage increased sharply with net debt in excess of USD 16 billion. The incoming cash flow was used to reduce net debt, which improved to less than USD 12 billion. In the Q2 2016 report the company states: “Resumption of dividends will be back on the agenda for our Board of Directors when we reach a level of leverage (Net debt/LTM EBITDA) of below 2x.” The topic will definitely be discussed at the February 2018 board meeting.


In the first half of the year, the total revenue came in at USD 33.3 billion, resulting in an operating income of USD 2.97 billion (+40% YoY on adj. basis). Net interest expenses were cut by around 30%, due to the reduced net debt. Bottom line showed a net income of USD 2.32 billion or USD 2.28/share, compared to USD 696 million or USD 0.88/share in the first half of last year.


In mid-June ArcelorMittal announced that a binding agreement concerning the lease and obligation to purchase Ilva S.p.A and its subsidiaries with the Italian Government has been reached. The purchase consortium is 88% owned by ArcelorMittal and 12% owned by Marcegaglia for a payment of EUR 1.8 billion to be provided in the form of a five-year lease by MT.


Ilva consists of one integrated steel mill in southern Italy and two relatively new cold rolling mills in northern Italy. Due to nearly two decades of under-investment, unfortunate management decisions and increased pressure from Chinese competitors, profits and performance were poorly in the recent past. The company has lost significant market share: Between 2012 and 2015 revenues fell from EUR 4.8 billion to EUR 2.2 billion, while losses increased in the same period from EUR 620 million to EUR 918 million.


ArcelorMittal plans to expand Ilva’s product range, invest in a new R&D center in Taranto, and materially improve its environmental footprint to bring the company back on track and realize its full potential.


Management calculates synergies over three years at EUR 310 million , due to reduced transportation costs, improved raw material purchase costs, and potential streamlining of production flows outside Italy with possible capacity reduction over times. Ilva expected to be EBITDA accretive to ArcelorMittal in year one, and free cash flow accretive in year three.


“Ilva is an important strategic acquisition for ArcelorMittal. It provides us with a significant production presence in a country in which we have no primary steelmaking capacity, and is complementary to our existing European business”, CFO Aditya Mittal said.


Steelmakers gained during the recent weeks on talk over Houston scrap supplies. Many automobiles and appliances could be junked due to Harvey-related flooding. Analysts estimate 150,000 to 200,000 new inventory automobiles on auto dealership lots and around 500,000 used automobiles have been destroyed. This could end in an incremental steel demand.


The stock is currently trading with a P/E of 8.04 at around EUR 22.33 and shows a market capitalization of EUR 22.79 billion. 20 Bloomberg analysts recommend BUY, 6 Hold and 2 analysts have a SELL rating. The consensus target price is set at EUR 27.37, 22.57% higher than the current price.


Vontobel products are tradable at DEGIRO.

Important legal information:

This information does not constitute a financial analysis, but product advertisement. Thus it does not meet the legal requirements to ensure the impartiality of financial analysis and is not subject to trade prohibition before the publication of a financial analysis.

Fordetailed information, particularly regarding the structure and the risks associated with an investment in the derivative financial instruments, prospective investors should read the Base Prospectus, which is available together with the Final Terms and any supplement to the Base Prospectus in electronic form on the issuer’s website: Additionally, the Base Prospectus, anysupplements to the Base Prospectus and the Final Terms are available inprinted form, free of charge, at the registered office of the issuer: Vontobel Europe AG, Bockenheimer Landstrasse 24, 60323
Frankfurt am Main, Germany.

Investors should consider the applicable selling restrictions.
Companies of the Vontobel group may directly or indirectly pay commissions in varying amounts to third parties (e.g. brokers) in connection with the public offer and the distribution of the derivative financial instruments. Further information is available upon request from your distribution partner.


25/09/2023 12:34:17