Making money in the markets in the first half of this year is going to be all about raw materials and commodities. This is where the price action is. Just look at the share price of Swedish steel producer SSAB (SWE:SSAB). It is the largest manufacturer of sheet steel in Scandinavia, and covers blast furnaces, coking, steelworks, mills and coating all under one umbrella.
SSAB just celebrated what it is calling a record year, which is impressive given Europe was still being hammered by the pandemic in 2021. It was the best in the company’s history, with record results posted in all its divisions. Operating profits for Q4 rose to SEK 6.96 bn and it concluded with net cash of SEK 2.3bn, which means the company is now debt free.
SSAB told investors it felt the outlook for Q1 2022 was “basically positive” albeit slightly tempered by a shortage of components at several of its customers. It admitted that Covid was still continuing to cause some issues with its operations and it has introduced further measures to mitigate this over the last few months.
Steel market looks in fantastic shape
The steel market looks in good shape in 2022. SSAB reckons demand will hold up well, although Covid continues to create some bottlenecks in supply chains. Global demand for high strength steel remains consistent and we don’t expect that will change any time soon. Steel shipments out of Sweden are anticipated to go up, with SSAB reporting it expects shipments from its Special Steels division to be higher, the same goes for its dedicated European and North American operations.
According to the World Steel Association, global crude steel production for the first 11 months of 2021 was up 4.5% compared to the same period in 2020. Chinese steel production has contracted, we think largely due to the pandemic in that country. While Chinese mills had been dominating global steel production, Chinese manufacturing is experiencing all sorts of problems at the moment, creating opportunities for steel makers outside China.
SSAB stock slightly off recent peak in March, still cheap
SSAB said it was seeing demand in Europe because of a shortage of components in the vehicle industry in particular. Prices for steel plate in Europe have remained stable, while in the US we have seen some gains in the heavy plate market.
SSAB stock was off its recent highs at time of writing. We had seen plenty of momentum in the stock over the winter months. Shares had nudged SEK 75 last month before dropping back to around SEK 62-63. Longer term SSAB investors have been looking at a pretty straight growth line from around January 2021 when the stock broke out of a range of SEK 25-30. Institutional investors, especially in Scandinavia, remain very bullish on this one, according to Stockopedia. Analysts have a consensus target price out at SEK 71.82 at the moment. Consensus forecasts for net profits (December 2022) is SEK 13.3 bn.
The 12 month forecast PE ratio still looks good, at 5.7x despite the share price gains. Headline numbers show a solid growth in revenue since 2016, and we don’t see why that would change anytime soon, The company looks very profitable, with solid cashflow and really excellent numbers for 2021. First quarter results are due to come out 26 April (09.30 CET) and we don’t expect SSAB to disappoint.
