There isn’t a thread on the forum discussing Outokumpu, so let’s start one. What do forum members think about Outokumpu? Has the air been let out of Outokumpu’s share price, and is it already time to add the stock to the portfolio?
I’ve been thinking that if the dividend level remains the same, it would be possible to get as much as a 6% annual yield at the current price, which seems quite sufficient. The stock might also have some upside, though perhaps not this year. I am at least looking forward to Friday’s Q3 interim report with interest.
Inderes’ latest morning report is below, in case anyone missed it
It’s unlikely that the dividend of such a cyclical company would remain the same if the economy really starts to decline. So, I wouldn’t count on just the dividend with this company. If one believes that the general economic development will be poor in the coming years, then I would be very cautious with this stock. If, for some strange reason, the economy continues its strong growth, then it could be a good purchase. However, I’m staying far away in this situation.
Outokumpu’s share price also jumps around a lot, so it could well surge upwards significantly at some point.
Ollila also left a sinking ship, just like he did with Nokia
Based on fundamentals, it’s already starting to look cheap, argues Gostowski in the latest update (also commented on in the video). Of course, this doesn’t mean that the stock can’t shoot in any direction, especially in the short term.
What on earth is the basis for the improvement in the operating profit margin for the 2020 forecast compared to 2019, even though the revenue forecast is declining?
For next year, the forecast is for earnings to grow by the same amount in euros as revenue. In fact, no analysis ever opens up the calculation formula for these figures; they are only justified verbally. Are they actually calculated in any way, or are they just estimated according to what feels appropriate?
In Outokumpu, revenue is strongly influenced by, for example, metal prices, of which, for example, nickel is practically a pass-through item. Thus, relative profitability also fluctuates quite strongly, which impairs comparability.
In the 2020 forecast, we expect the sales mix to improve slightly, and the better margin level of higher value-added products will also raise the margin forecast. The company’s target for 2020 EBITDA is EUR 750 million, a significant part of which should come precisely through an improved sales mix.
Outokumpu is, in my opinion, one of the most exciting stocks on the market. The valuation looks attractive now, even though the price has already gone up a bit. It will be interesting to see the long-term impact of tariffs on Outokumpu’s business. My view is that Outokumpu has all the prerequisites to succeed well in the current market, but there is no room for error, and one must be quite careful with the stock because there is plenty of volatility (but I would only see that as an opportunity for now ). I have held onto a share bought at 5.46€, and I thought I might increase my ownership a bit at some point if the price remains attractive and the market doesn’t show too much headwind
By the way, @Petri_Gostowski, how would you comment on Americans’ situation in general right now? What is the reason that the predicted turnaround to a reasonable profit level has not occurred, even though it has been forecast for so long? I have the impression that increased costs play a large role in this, but do you think something else crucial has gone wrong? For example, has value creation significantly failed to meet estimates with Americans’ current product mix? The Europe segment is doing surprisingly well in my opinion, but Americans’ continuous disappointments are starting to raise some questions about the entire segment’s future profitability.
Of course, costs play a big role, but the revenue mix seems to be the most critical factor right now.
However, it should be noted that a large part of the costs comes from market prices, and thus if you can increase volumes and thereby lower the relative cost level with efficiency benefits, some of this may be buried under, for example, rising prices of certain raw materials. Since there is not very detailed visibility into the cost side, there is no exact information on how much progress has been made there.
If Americas is compared to Europe, Europe certainly sells at a significantly higher average price, which in turn indicates a higher added value. In that case, the margins are also significantly wider when selling more specialized products.
Outokumpu’s CMD is in just over 2 weeks; hopefully, we will get a comprehensive update on this situation then.
Surprisingly, Outokumpu now actually seems like a serious investment. Thanks to Gostowski for bringing it up in his report. I bought at €3.83/share.
Balance Sheet 6/2018 (million EUR)
Tangible
fixed assets 2616
Current assets 2605
Interest-bearing liabilities -1335
Non-interest-bearing liabilities including pension liabilities -2235
Book value approx. 1650 million
After the previous share issue, it has reduced its debt from cash flow by a few hundred million in 2014-2016. Interest-bearing debt is currently 25% of assets. The current balance sheet should withstand even if the market becomes difficult.
At today’s prices of 4 EUR/share, mcap is about 1.7 billion, so P/B is slightly over 1.0. The rollercoaster will continue, but I think at levels of P/B 1.0 - 2.5 as before. If it dips, I might add more.
Edit: clarification, in my key figures, I disregard long-term tax receivables, intangibles, etc.
TA gives a bleak picture of the target. There’s no end in sight for the decline yet, although a small start of an upturn is now visible. Bear volume dominates, and selling has continued for a long time. MA 200 is slightly below 6e, and the first step of an upward trend on a weekly basis would be to surpass 5.396.
Bottom fishing for a target like this is difficult unless you have a large capital for it.
I think the market is overreacting to today’s news. Still, a positive outlook for Q4, and 4.5% down today. Although we’re talking about a one-off item, EUR 32 million is quite significant, especially as it raises at least Petri G’s adjusted EBITDA forecast (for 2018) to over EUR 500 million, assuming the forecast isn’t revised downwards in other areas soon. But everyone can draw their own conclusions
While I’m not that familiar with the fundamentals, isn’t Outokumpu facing the challenge of prolonged steel overproduction and falling prices globally? I looked at the development of steel prices and the VanEck Vectors Steel ETF, and then United States Steel Corporation among U.S. companies.
this year’s curves are similar to Outokumpu’s, it’s been going down all year
why would Outokumpu manage to beat the market and prevent its share price from falling given this background? Regardless of the balance sheet value and the higher-than-average processing level of its products
Excellent points, @DayTraderXL! What you said is true; I’m basing my decision on the track record at this point, as I don’t know the segment’s fundamentals well enough to extrapolate the future from them. However, Outokumpu has surprisingly delivered good results so far in 2018, especially with the Europe, Americas segment being a disappointment If you have more competence than me, I’m sure you can get something out of your observations
Note: my assumption is not, of course, that anyone could extrapolate the future perfectly. What I meant was that it might go badly for me if I tried to draw some conclusions from the segment’s dynamics when considering valuation
). I have held onto a share bought at 5.46€, and I thought I might increase my ownership a bit at some point if the price remains attractive and the market doesn’t show too much headwind 
