Ternium (US:TX)

You have no idea how stupid I feel about saying this was a risky company to invest in during 2008 when the price was $7. Then again, at the time, I thought Chavez had taken Sidor and Ternium would get nothing (didn’t have a clue how relevant Sidor was to Ternium). Did I massively overestimate the importance of Sidor? How are they making their EPS now? I think I had trouble with the share count before as well, since I was using the number of shares reported on the financial statements (2B or so, when in fact, one ADR on the NYSE represents 10 shares from the financial statements, so the true count is 200M). When I did my analysis, my numbers were way off as a result. Also, the steel prices were falling like crazy, and everything was going to hell, so I think I have a defensible, but still dead wrong position for passing on this when it was at its low. Oh well, at least I am learning from my mistakes (eventually).

$10.60 per share cash, $34.46 per share book value, $9.65 per share of debt, and $21.00 per share total liabilities (we all know the financial backing of this company, so no worries there). I like the ridiculous cash balance, but I think most of it is earmarked for investments. Had no idea book value was so close to market price. The $3.60 EPS suggests the stock price should be somewhere around $60, so I am not sure what is dragging it down.

1 payment of $0.50 per year for the dividend is nothing special. Saw a note about the laws of Luxembourg restricting distributions of dividends until a reserve of 10% of share capital is built up. Now that this has been accomplished, we may see increased dividends.

Can anyone else find a reason why this should not be $60? I only took a quick look at the financials and did not have time for more, so maybe I will find it after putting in some more homework.

The reasons I bought in are because it is a stable company with good growth potential in the long term, lots of cash in the bank and the pending payment from Chaves for Sidor. I'm not really sure why the price isn't higher.

I know they have three developments which will require capital expenditure. One is a joint venture with Japan to increase galvanized flat steel production by something in the order of 3-400,000 tons/year, another is something in Brazil relating to potential savings on transport of ore and proximity to a large port, and the third is the massive project for the development of a new steel facility in Mexico (~$5 billion investment). I don't know how or when thiese will affect the sp. I read somewhere that they are not really sure what to do with the excess cash. They don't see any buy-out targets in the near future and I have a hard time picturing an increased dividend.

I think your question needs to be answered by a professional....

Lost for words on TX.... up 12% or $1600 in 3 weeks (again) and they still haven't received the final payment for Sidor, which is over due. So... hold or sell?

I couldn't stomach the potential to lose what I have gained, so I sold out at 37.70 for a 12.5% profit. See you again in a month TX... In a month.

And of course... as usual, not only did I sell, I told everyone and look what happens... within minutes! I really need to figure out this mind reading game.

It will come back down some day, and by then, I will have a better analysis of the company.

Nice job on the 12% in one month.

I wouldn't worry about the Sidor payment. 1) It only makes $1 difference to the stock price. 2) Chavez will pay 3) Ternium has recourse if they don't pay (although it will take forever).

I am a little worried about the constitution of the book value. There may be some intangibles I need to remove from my valuation.

Well, I think the recent sale/offering of TX combined with the drop in price, provides merit for a fresh analysis. I don't have the cash available at the moment, but I think now would be a decent start/re-entry point. Anyone care to comment?

I will take a look, but for the moment, I would try and figure out why Uiminas is selling all their shares. Do they need money for something or do they believe the company is overvalued. It sends a strong signal to the market of the latter.

Most recent data I could find is from Sep 2010. Should have an update very soon. However, the book value is $7B, and shares outstanding are 200M (ADR represents 10 shares of underlying stock). This works out to about $35 per share in book value. If you subtract $2B to take a conservative estimate of book value considering that all assets are Property, Plant, and Equipment (PP&E), and $1B in intangibles, we have something closer to a $25 valuation.

Adding to that the earnings of $2 (rounded down from $2.79 for conservatism) at a multiple of 5-10x (the market does seem to grant very high multiples to ADRs), and you end up with a target price of $25 + ($2 x 5) = $35, and room to rise up to about $40 with relative safety. If you apply a higher multiple of 15 -20x, the stock should rise to about $60. I think an average of the two would put a fair price at around $50.

This stock got killed yesterday. As far as I can tell, it is on news of the acquisition of Usiminas because they overpaid and the business is struggling. I am sure this was a strategic decision to gain access to Brazil's ore supplies.

Anway, the stock looks dirt cheap at the moment, and I have bought a small position. We know the stock is backed by a controlling group that is well capitalized and needs the company for strategic purposes, so there is a low risk of bankruptcy. Some short term losses are possible, but long term looks good.

My one concern is that it is an ADS share and may somehow have exposure to the Argentine Peso or liquidity risk. Doesn't seem to affect TS though.

Have to wait a quarter to see the new financials after the acquisition.