Ternium (TX)

With the recent market weakness I went through my holdings, updating what looks like should be their valuation. No surprise there look to be deals out there of course, provided you have funds.

One stood out in particular, which is Ternium. It’s a South and Central America steel manufacturer. I hope to solicit some opinions, just to see if I’m missing something or if the market has gone insane on this one.

It has ~$8B market cap, ~$9B net tangible assets and ~$9B non-current assets (plants and equipment), $1.6B cash in the bank and about equal amount in debt. So seems fairly solid.

It’s been a steady dividend payer since 2007, currently yielding 6.5%.

Just looking at the assets it looks cheap. But the part I really can’t wrap my head around is they reported $4 a share in earnings for the most recent quarter. $20/share for the past 12 months. On a share price of $40.

At first I thought it must be the ADS 1:10 stock ratio, but the reported earnings are stated to be per ADS.

Link to the most recent quarterly report is here https://finance.yahoo.com/news/ternium-announces-first-quart…

OK, this is not a sexy business and I imagine sees stiff competition from China at times. But a PE of 2 is completely insane. Somebody please pinch me. Somewhere someone must have fat-fingered some of the financial data.

Mark

One thing that I notice is that it isn’t a constant dividend. So it will jump around with whatever their business is doing which makes it very hard to tell what the dividend will be next year.

Andy

One thing that I notice is that it isn’t a constant dividend. So it will jump around with whatever their business is doing which makes it very hard to tell what the dividend will be next year.

It’s not a straight stair-case upwards, but it doesn’t really jump around much either. The trend has been steadily up from $0.50 in 2007 to $1.20 in 2020, which is a decent gain overall. In 2021 it was $2.90, quite a large jump, and in 2022 so far it paid $1.80.

The elephant in the room is the PE of 2 of course, while you’re wondering if the ears are big enough for an African elephant. I’m more looking for evidence it’s not a dog.

Mark

Maybe Yahoo is incorrect but here is what they show.


5/4/2018     $1.10
5/8/2019     $1.20
No dividend in 2020
5/5/2021     $2.10
11/12/21     $.80
5/5/22       $1.80

But if you smooth it out yearly instead of quarterly.

2018  $1.10
2019  $1.20
2020  $0
2021  $3.00
2022  $1.80 so far

Actually I am not looking for an elephant or a dog because I have no dog in this hunt.

This is just an observation. If I really cared I would look into their business and see how it is doing and look at the Income Statement, Cashflow Statement, and Balance sheet to see how solid this company is but IF I was looking for a dividend payer I would want something that paid quarterly and paid it every year with the dividend increasing every year. This would not be that.

But this is just my observation and it may not mean anything for your criteria and is very superficial.

Andy

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But a PE of 2 is completely insane. Somebody please pinch me.

That’s certainly low, but it’s not unusual for shares of highly cyclical businesses to show P/Es in the low single digits when profits are at their peak. Steel is the epitome of a highly cyclical business. It’s also offshore, which (for me) adds another layer of uncertainty–a subsidiary of an Argentine company and based in Luxembourg(!).

I suppose it wouldn’t hurt to take a modest position and see how it goes. But, for myself, I wouldn’t invest a lot in it merely based on the surface numerical picture. Plus, as noted, the dividend itself bounces around. One day chicken the next day feathers, as my father used to say.

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