The sharp correction in the prices of the iron ore in the last few days hit the stocks of the sector of mining and steel. This Thursday (25), iron ore fell again in the Chinathis time to the lowest level in nearly six months, as traders assess slower demand for the steelmaking raw material over the summer period in the Asian country.
The steelmaking ingredient is currently trading below $100 a tonne, from a high of $130 just a few months ago. As a result, securities exposed to the commodity also suffered downward pressure, with OK (VOUCH3) accumulating losses of approximately 20% since the beginning of April.
Despite this, some analysts remain firm in recommending the sector. It is the case of Credit Suissewhich still has an “outperform” rating (expected performance above the market average, equivalent to “buy”) for Vale and Gerdau (GGBR4), preferably within the steel segment.
still worth having
While recognizing that the imbalance in sales and distribution of steel China and the slowdown in real estate market data may keep iron ore prices under pressure in the short term, the Swiss bank understands that Vale is better positioned than its peers to benefit from the industry’s decarbonization process in the coming years.
The company’s exposure to low-impurity iron ore is a competitive advantage that should gradually be priced in as demand and high-quality iron ore products increase, he says.
In the case of Gerdau, Credit Suisse points out that the company should manage to deliver a strong yield of free cash flow of 19% in 2023. Analysts at the bank see a good space for payments of dividendswith an estimated R$6 billion to be distributed this year (14% yield).
For Credit Suisse, Vale and Gerdau shares are traded at valuations attractive, with Vale at 3.6 times EV/EBITDA (company value over EBITDA) for 2023 and Gerdau below the historical five-year average of 5.5 times EV/EBITDA to 3.1 times EV/EBITDA for 2023.
The bank cut the target price of Vale’s ADR (American Depositary Receipt), from US$ 25.50 to US$ 18. Gerdau’s share target price also fell, from R$ 44.50 to R$ 34.
Downgrade in CSNA3
Credit Suisse has downgraded the CSN (CSNA3) to “neutral” and cut the target price from BRL 23.50 to BRL 14. According to the institution, the company is traded at 4.6 times EV/Ebitda in 2023, in line with the Usiminas (USIM5), but above Gerdau.
Analysts are concerned about deteriorating leverage metrics, which skyrocketed from 1.69 times net debt/EBITDA in Q3 2022 to 2.45 times Q1 2023.
“We see it reaching 2.84 times in the second quarter of 2023, as there is a scheduled cash disbursement of BRL 2.3 billion related to the payment of dividends”, says Credit Suisse.
Considering the deteriorating leverage scenario, the institution assesses that there may be pressure on CSN’s cash, impacting shareholder remuneration from now on (forecast of 6% yield of free cash flow and 5% of dividend yield to 2024).
The “neutral” rating also applies to Usiminas, which has a target price of R$8 for the bank.
Source: Moneytimes
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