ARI - Arrium Limited

[System]

Arrium Limited (ARI) was formerly known as OneSteel Limited (OST).

Previous discussion of this company can be found in the OST thread: https://www.aussiestockforums.com/forums/showthread.php?t=814

 

[monaroman76]

Hey all, I am new to the forum and keen to learn a lot from the knowledgeable members.

What are people's opinions on this company? In my opinion, Onesteel was punished badly by the market due to lack of understanding about the structure of the business. The name change was a good decision by management, and perhaps now it can be understood that Arrium is much more than just a Steel manufacturer as the former name would suggest. The steel manufacturing sector of the business is set to make a positive EBITDA for the second half of 2012 for the first time in many years. The Iron ore export sector of the business has been the main driving force behind their profits for several years, now with the expansion projects to increase iron ore exports, they seem to be in a great position to increase profitability.
It is my opinion that the steel industry will turn around in Australia in the future, and Arrium will be in in a good position to take advantage of this, given all their efforts put in to reduce costs in their manufacturing business.

They are trading on a very low P/E at the moment. Does anyone else think they are heavily undervalued?

 

[Knobby22]

Thanks for the heads up.
Having a look. Recycling is going bad. Very susceptible to high $A in all businesses.
As you say it is their Iron Ore exports that make all the money. May as well be not in other businesses at present.

Worth considering. I am personally scared that the $A will rise so am not that keen at present.
Definitely one to keep an eye on.
Anyone else have an opinion??

 

[oldblue]

I'd be careful about putting too much store on the "mis-understood stock" angle. Brokers and institutions have been well aware of the nature of ARI's business - certainly now and, I suspect, well before the company started its name change campaign.

Factors to consider include:

- Trend of iron ore prices in the light of a probable peaking and decline in Chinese demand.

- Ore grades and extraction costs, particularly vis a vis the Pilbarra iron ore producers.

- Continuing flat demand for steel products and competitive costs of Indian and other Asian mills.

Disc: Not holding.

 

[monaroman76]

Thank you both for the input.

I will be following closely to see the results from the FY report. The SP jumped significantly after the half yearly report on average results. I am assuming the market was expecting a profit result likened to that of BSL? Can any one shed any light on what caused the price to jump up by 40% in a matter of days?

 

[Crows]

Nice to see Arrium shoot up 9.5 cents from 0.81 to 9.05 in a single day yestersay. Some investor confidence seems to be emerging after Arrium released their business report.

Keeping an eye on this stock as it could be a bit of hype and merely a bubble.

 

[Centaur]

Members,
Seeking some opinion as on the following transaction.
I bought 7000 ARI a couple of weeks ago @ 0.595. Following takeover news this week shares have spiked somewhat. I took the opportunity to sell 4000 today @ 0.72 and bank some profit. Basis of decision was that if takeover potential falls away then SP may follow in same direction. My remaining holding potentially benefits if takeover offer is reviewed.
Happy with my decision with this trade however I am curious as to what others think they would have done.
Cheers
Centaur

 

[skc]

Members,
Seeking some opinion as on the following transaction.
I bought 7000 ARI a couple of weeks ago @ 0.595. Following takeover news this week shares have spiked somewhat. I took the opportunity to sell 4000 today @ 0.72 and bank some profit. Basis of decision was that if takeover potential falls away then SP may follow in same direction. My remaining holding potentially benefits if takeover offer is reviewed.
Happy with my decision with this trade however I am curious as to what others think they would have done.
Cheers
Centaur

The general chatter seems to be that it is just the first offer and undervalues the business on a break-up basis. The mining supplies division is quite profitable, the iron ore division is at the mercy of the iron ore price, while the loss-making steel division needs an injection of technology that might turnaround its performance.

With the bidders being essentially trade buyers for various parts of the business, it feels like the "7 hair experts" coming in to "fix" the company.

The overall market is also enjoying a much healthier tone. Two other M&A deals today (DML and ACN) means that people are definitely less bearish.

Disclosure. I hold @ ~67c.

P.S. Not advice. Just opinions

 

[notting]

A risk might be that it is a strategic asset for steel making and could be seen as something against the interests of the country if it fell into foreign hands. The only other one we have these days is BSL.
So an acceptable bid from a foreign entity, not a joke like this one, could be blocked at the national level.
Then again I guess the gov could put in all kinds of caveats to safe guard Ausi steel making capacity, which would probably put the buyers off any way.

 

[noirua]

BHP Billiton could make an offer of shares and more easily split the iron ore side away from steel manufacturing. They would have more cash to update the good sides of Arrium

 

[qldfrog]

BHP Billiton could make an offer of shares and more easily split the iron ore side away from steel manufacturing. They would have more cash to update the good sides of Arrium

BHP?
with all respect, are you kidding or what? BHP has no clue where to find the money it needs for its own profitable development...
China, maybe as a way to convert some US $ but not BHP

 

[skc]

BHP Billiton could make an offer of shares and more easily split the iron ore side away from steel manufacturing. They would have more cash to update the good sides of Arrium

That would be pretty funny considering OneSteel was a spin off from BHP all those years ago.

 

[yshima]

up 8% today.

 

[Crows]

http://blogs.wsj.com/dealjournalaus...-revive-1-billion-takeover-talks-with-arrium/

Posco, Noble Consortium Seeks to Revive $1 Billion Takeover Talks With Arrium

Steelmakers Australia, a consortium led by Korean steel producer Posco 005490.SE -1.43% and commodities trader Noble Group Ltd. N21.SG 0.00%, sent a letter Wednesday to the board of Australian steelmaker Arrium Ltd. ARI.AU +3.21%, asking to re-engage, a spokesman for Steelmakers said.

The proposal ”” on which Steelmakers is seeking to base discussion ”” has not changed from the proposal it offered on Sept. 28 which outlined a 1 billion Australian dollar (US$1.04 billion) acquisition at 75 cents a share.

Arrium closed Wednesday at 80.5 cents a share, a 7.3% premium to the offer from the Asian consortium.

“It’s like sending the same letter twice,” an Arrium spokesman said. He added that there was nothing in Wednesday’s letter that hadn’t already been rejected by the board on Oct. 1. “This opportunistic approach comes at a time of volatile commodity prices and market conditions,” Arrium said at the time.

Steelmakers Australia’s initial proposal was conditional on factors including exclusivity during due diligence, arranging debt finance, regulatory approvals and recommendation from Arrium’s board.

There are other parties poised to join the Steelmakers Australia consortium, alongside National Pension Service of Korea, Korea Investment Corporation and Korea Finance Corporation, should a scheme of arrangement be agreed, a person familiar with the situation said Wednesday.

Analysts, including Morgan Stanley's MS +0.53% Philip Bare, believe the consortium can afford to lift its bid by as much as 20%, to 90 cents a share, which would value Arrium at A$1.21 billion.

 

[notting]

Revised bid still a joke.
Will they go directly to share holders after it tanks again?

 

[pixel]

Now that a top seems firmly established as resistance, we can use the new range for our next Fibonacci study. Let's see how far ARI may drop and at what level support is coming in. My experience suggests that 61.8% is more likely than 78.6%, but I'll keep an open mind and let the Market tell me which it'll be.
Two alerts set: Down to $1 and back up above $1.20.
No action needed in between. But let's also keep that old open gap in mind...

 

[notting]

Shorted it yesterday because I cannot believe that this and BLS have rallied like they have given the shocking results they have produced for the last 5 years.
BLS is worse in my opinion but is yet to turn.

 

[pavilion103]

I got in at 0.98. Still holding.

 

[monaroman76]

1H underlying NPAT actually beat most analysts expectations and was weighed down heavily by the weak Iron ore price in the first quarter. If Iron ore prices maintain current levels or close to, 2H profit will be significantly higher as Iron ore exports ramp up due to port expansion. It looks like ~5Mt of Iron ore will be exported in the second half and if average Iron ore prices for the half remain strong this will see a decent turn around for EBIT in the mining sector. Arrium will be running at a rate of 12Mt of Iron Ore exports by August 2013, making it the forth largest exporter of Iron ore in Aus.

Mining consumables has been steadily gaining pace and nearly matched minings EBIT for the first half. The other sectors of the business are essentially breaking even and don't look to turn a decent profit in the near future. If mining and mining consumables can carry Arrium through the hard times the Steel industry is currently facing, they could be well positioned in the future if domestic and international demand for steel picks up.

-I hold shares in ARI.

 

[notting]

If mining and mining consumables can carry Arrium through the hard times the Steel industry is currently facing, they could be well positioned in the future if domestic and international demand for steel picks up

Fair points.
Yet if you look at what mining services have done in terms of price movements over the last couple of days and Ore stocks this is fairly certain to continue weakness.
What is their cost of production relative to the others?
Doesn't matter how much they can ship it's how cheaply they can do it given the ramping up by RIO and others coming on tap. Spose that might sustain the consumables.
The steel production should just be a write off otherwise it's just a running liability unless the government continues to support it.