SAO PAULO – Faced with a more challenging scenario for iron ore, with lower demand in the domestic market and price correction in August, added to concerns about a slowdown in the economic recovery and high interest rates in the US, Credit Suisse has revised its scenario for Brazilian mining and steel companies.
In the bank’s assessment, while Latin American steelmakers’ earnings are likely to remain strong in the second half – supported by higher price realizations, “healthy” steel deliveries and easing cost pressures – this already seems to be in the price of some. active. At the same time, analysts see valuations attractive and “solid” free cash flow metrics in 2022, which leads to opportunities for industry shares.
“While we recognize that the outlook for the sector is bleaker than in the first half, we see steel prices for 2022 in excessive corrections (down more than 40%), which we believe is too bearish. We expect low global interest rates, a growing focus on decarbonisation, along with cuts in steel production in China to remain favorable winds,” writes Credit Suisse in a report.
In this scenario, the bank raised its recommendation for the shares of Gerdau (GGBR4) and Metalúrgica Gerdau (GOAU4) from neutral to performer (above the market average), and raised the target price from R$37 to R$39.50, and from R$17.50 to R$18.50, respectively. The respective valuation potentials are 46% and 51% in relation to the previous day’s closing.
According to Caio Ribeiro, an analyst at Credit Suisse, Gerdau is trading below its historical average, from 6 to 6.5 times the company’s value (EV) on earnings before interest, taxes, depreciation and amortization (Ebitda, in its acronym in English) in 2022.
In addition, the company’s North American division allows Gerdau “interesting” exposure, in Ribeiro’s assessment, to the infrastructure plan of US President Joe Biden, which should allow the company to maintain higher margins at least until the end of 2022.
As for Metalúrgica Gerdau, the analyst argues that healthy demand conditions in Brazil, fueled by project launches and high spreads Metals in the US are expected to continue to provide strong earnings momentum for the company.
Analysts maintained an outperform recommendation for CSN and Usiminas, but reduced the target price of the first from R$65 to R$62.50 (still a potential upside of 88%) and raised the target price of the second from R$28.50 to R$29 (86% upside).
CSN Mineração e Vale
Credit Suisse also updated its projections for CSN Mineração (CMIN3) and Vale’s shares traded on the New York Stock Exchange, incorporating second quarter 2021 results, higher capital costs and a lower price for ore in the third quarter. quarter, falling from US$ 190 to US$ 176 a ton.
The bank kept its recommendation performer for CMIN3 shares, but opted to reduce the target price from R$13 to R$12 per share, still with a potential upside of 78%. Despite the recent pressure on the price of iron, Credit Suisse sees the company’s free cash flow with a “solid” yield of around 12% for 2022.
Ribeiro also says he sees a valuation “attractive” of 2.5 times the company value (EV) over Ebitda for 2022, mainly considering the company’s “significant” growth potential. In addition, the team sees “generous” dividend yields of 20% in 2022.
As with CSN Mineração, the bank maintained its recommendation for performer for the shares of Vale (VALE3) traded on the New York Stock Exchange, but cut the target price of the shares from US$ 28 to US$ 24, or a 34% increase.
“In general, we see the valuation 2.4 times the EV/Ebitda for 2022 as over-discounted and the return prospects ahead are attractive. We see Vale delivering a strong 19% free cash flow in 2022 and its dividend policy is expected to bring minimum returns of 10% next year,” writes the analyst.
Ribeiro also writes that he sees Vale’s share price pricing an iron ore correction to a range of $90 to $95 per ton in 2022, which he sees as “very unlikely” to materialize.
This Thursday (9), the shares of the segment register distinct movements. At 11:40 am (Brasilia time), VALE3 dropped 0.09%, to R$ 94.95, while CMIN3 operated stable, at R$ 6.75. Gerdau, Gerdau Metalúrgica and CSN rose, respectively, 2.37% (R$ 27.69), 2.36% (R$ 12.56) and 2.38% (R$ 34). Usiminas advanced 0.77%, at R$ 15.71.
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