Peregrine Posted August 17, 2015 Share Posted August 17, 2015 I finally got into PKX at $40 a share. i'm surprised it's going lower. Please share what you think the lowest price you think it can go in 2 years. I think it's a bit crazy how far below book value pkx is selling. just the real estate they own must be worth billions. with that said, i don't want my stock going down 50%. Pls advise. When you buy Posco, you are mainly buying the steel business. The "Bet" is that Earnings/Operating Income/FCF is depressed, and they should return to normalized historical levels. Right now Market cap is around $12.5B, with consolidated debt around $40B, so the enterprise value is around $52B. What do you get for $52B? Off $60B of steel sales, right now they are achieving 5% operating margins or about $3B of operating income. So if steel prices stay at where they are for a long time, Posco trades at 17X operating income, which is actually a pretty high price to pay for a cyclical commodity business, even if it's the best in the world. Let's say they can return to 10% operating margins and generate $6B of operating income, then they are trading for 8.5x operating income which is far more attractive but still not a large margin of safety, especially since Posco is pretty capital intensive and needs to reinvest a lot just to stay competitive(meaning FCF is lower). To answer your question about Posco going down 50%, I think it could still be possible, because right now a large portion of Posco's enterprise value is debt, the equity portion could swing wildly and the enterprise value wouldn't move as much. I've heard the argument that a lot of the debt does not have to be paid by the parent, but I'm not sure how accurate that is. Also a statement on book value. Companies trade often trade below book value if they're not using their assets effectively or generating an adequate return, and above if they're generating above average returns. Posco right now falls into the former, so some discount is warranted. Hope this helps. I don't think you can count consolidated debt into POSCO's EV. POSCO owns various subsidiaries in which it has anywhere from 50-100% stakes and from which it fully consolidates assets and liabilities on its statements. Its proportional share of that debt is far less. Also, a lot of that debt is offset by short-term financial assets including cash, securities, loans and receivables - the latter of which largely arise from POSCO's trading subsidiary Daewoo International. Daewoo funds its working capital with a lot of the short-term debt that you count into total consolidated debt. Again if these fairly liquid assets are offset, the net debt figure would be quite a bit lower. It's worth noting that at the parent level, POSCO has no net debt. Its financial statements can be difficult to read given that it owns hundreds of subsidiaries and affiliates involved in an array of different economic businesses that it either fully consolidates or accounts for under the equity method. Which is why reading the statements at the parent level is useful in conjunction with reading the statements at the consolidated level. Link to comment Share on other sites More sharing options...
Picasso Posted August 17, 2015 Share Posted August 17, 2015 I'm always intrigued by the way investors shift between valuing on enterprise value or the market cap. The FCF yield on the enterprise value gives you a cash on cash yield similar to buying real estate without taking on leverage. But who is going to take PKX private? I don't see that happening. The main thing to look at is their worst case operating cash flow against their worst case cost of capital. That gives you an idea of what you are getting as the levered equity investor. When things look the worst, investors will value this on the enterprise value. But if and when things get better, suddenly everyone will be looking at price to earnings/cash flow multiples on the equity again. Arguably this can easily get cut in half to get to a margin of safety on the EV/FCF multiple. But that is probably too simplistic a view to figure out the margin of safety on a low cost commodity producer operating in a difficult environment. Lots of variables going different directions and hard to know what weighting those variables should each hold. Still in the too hard bucket for me. Link to comment Share on other sites More sharing options...
karthikpm Posted August 26, 2015 Share Posted August 26, 2015 Posco keeps trying in India http://news.morningstar.com/all/ViewNews.aspx?article=/DJ/TDJNDN201508118274_univ.xml Link to comment Share on other sites More sharing options...
EricSchleien Posted September 1, 2015 Share Posted September 1, 2015 http://www.koreaherald.com/view.php?ud=20150831001189 Link to comment Share on other sites More sharing options...
EricSchleien Posted October 4, 2015 Share Posted October 4, 2015 Scientists Invent a New Steel as Strong as Titanium South Korean researchers have solved a longstanding problem that stopped them from creating ultra-strong, lightweight aluminum-steel alloys. http://www.popularmechanics.com/technology/news/a13919/new-steel-alloy-titanium/ Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted October 5, 2015 Share Posted October 5, 2015 Scientists Invent a New Steel as Strong as Titanium South Korean researchers have solved a longstanding problem that stopped them from creating ultra-strong, lightweight aluminum-steel alloys. http://www.popularmechanics.com/technology/news/a13919/new-steel-alloy-titanium/ I know that POSTECH and POSCO work very closely together and that Posco started POSTECH. Are the results of research by POSTECH exclusively for Posco, or could competitors take advantage of this as well? If Posco had a corner on the market for lighter, stronger steel than that would be a good thing. Just curious how the working relationship is with POSTECH to know how much importance this really holds for us. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted October 20, 2015 Share Posted October 20, 2015 http://www.ft.com/intl/cms/s/0/fdaa42ea-7717-11e5-8564-b4bb9a521c63.html#axzz3p36bFoyp For those who don't have full access. Posco warns of first-ever full-year loss as China slowdown hits High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/fdaa42ea-7717-11e5-8564-b4bb9a521c63.html#ixzz3p762lbWq South Korean steelmaker Posco on Tuesday reported the biggest quarterly loss in its history as investment writedowns and adverse currency movements added to the impact of slowing demand from China. The world’s fifth-largest steelmaker by production also forecast it would make a full-year loss, its first ever. Makes it seem like the prior estimates of 30% earnings growth were just blowing smoke. I still have hope that the slowdown in China and increasing environmental regulations will take a lot of capacity off the table, but it may take a lot longer than expected. Link to comment Share on other sites More sharing options...
RadMan24 Posted October 22, 2015 Share Posted October 22, 2015 http://www.ft.com/intl/cms/s/0/fdaa42ea-7717-11e5-8564-b4bb9a521c63.html#axzz3p36bFoyp For those who don't have full access. Posco warns of first-ever full-year loss as China slowdown hits High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/fdaa42ea-7717-11e5-8564-b4bb9a521c63.html#ixzz3p762lbWq South Korean steelmaker Posco on Tuesday reported the biggest quarterly loss in its history as investment writedowns and adverse currency movements added to the impact of slowing demand from China. The world’s fifth-largest steelmaker by production also forecast it would make a full-year loss, its first ever. Makes it seem like the prior estimates of 30% earnings growth were just blowing smoke. I still have hope that the slowdown in China and increasing environmental regulations will take a lot of capacity off the table, but it may take a lot longer than expected. Operating marigins are better than the dim picture. "Its operating margin of 10.1 per cent for the period was higher than in the previous quarter and roughly double that of ArcelorMittal, the world’s biggest steelmaker, said Chung Sung-yop at Daiwa Securities. But as the US dollar strengthens Posco has been punished for its heavy dollar-denominated debt burden, which amounts to more than Won6tn, he added. The company reported currency losses of Won529bn, as well as Won263bn of writedowns on the value of raw material assets, and Won125bn on investments including ventures in Thailand and Brazil. These unexpectedly large losses underscore the urgency of Posco’s major restructuring plan, in which it has pledged to dispense with dozens of non-core businesses and pay down debt, said Ms Park. “They’re focusing on really improving their asset quality,” she said. “They’ve maintained a decent balance sheet, so will focus on maintaining stability in the steel operation.” Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 24, 2015 Share Posted November 24, 2015 http://www.bloomberg.com/news/articles/2015-11-24/why-china-s-steel-mills-won-t-cut-back-on-production Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted December 4, 2015 Share Posted December 4, 2015 http://www.ft.com/intl/cms/s/0/a29e6ce2-9a3e-11e5-bdda-9f13f99fa654.html#axzz3tMmzlcUe China has shuttered 50m tonnes of steel manufacturing capacity this year, just 4 per cent of its total 1.14bn tonnes of capacity, according to HSBC. The bank calculates China would need to cut an additional 120m to 160m tonnes of capacity next year for the industry-wide utilisation rate to reach a “relatively healthy” level of 80 per cent. :/ Maybe this is the bottom after losing $11B this year and not shuttering hardly anything. I knew they weren't shuttering the amount that needed to be closed for economic purposes, but I'm blown away that it's only 4% when they're hemorrhaging $11B and have environmental pressures. If they close the 120-160MM next year, this may be the bottom for steel producers. Otherwise, I imagine there will only be more pain. Link to comment Share on other sites More sharing options...
MrB Posted December 9, 2015 Share Posted December 9, 2015 http://www.ft.com/intl/cms/s/0/a29e6ce2-9a3e-11e5-bdda-9f13f99fa654.html#axzz3tMmzlcUe China has shuttered 50m tonnes of steel manufacturing capacity this year, just 4 per cent of its total 1.14bn tonnes of capacity, according to HSBC. The bank calculates China would need to cut an additional 120m to 160m tonnes of capacity next year for the industry-wide utilisation rate to reach a “relatively healthy” level of 80 per cent. :/ Maybe this is the bottom after losing $11B this year and not shuttering hardly anything. I knew they weren't shuttering the amount that needed to be closed for economic purposes, but I'm blown away that it's only 4% when they're hemorrhaging $11B and have environmental pressures. If they close the 120-160MM next year, this may be the bottom for steel producers. Otherwise, I imagine there will only be more pain. Another interesting bit from that article is that CNY14.8Bn of the 72Bn annual losses was in Oct alone, so it seems to be accelerating significantly. Regular reporting on the volumes can be found here http://www.seaisi.org/news/news_view.asp?news_id=5161 or just http://www.seaisi.org Link to comment Share on other sites More sharing options...
MrB Posted December 9, 2015 Share Posted December 9, 2015 Can anyone provide more color on how POSCO's profits break down in the steel business specifically please? I've come across a few references like the following that say they make 50% of their profits from autosheet, which only makes up 20% of sales on the steel side. http://english.hankyung.com/news/apps/news.view?c1=04&nkey=201510211406141 Alternatively anyone that has Citi Posco reports by Tatsuro Ochi and/or Sungmee Park? With WP product to go another 10 percentage points to 2017 from the current 40 it could provide a pretty meaningful bump. Link to comment Share on other sites More sharing options...
tylerdurden Posted December 9, 2015 Share Posted December 9, 2015 I always thought when this overcapacity issue is over Posco will be much stronger and profitable because of high margin products (WP) having more weight. Whatever don't kill you make you stronger I guess but I have no clue when that would happen... Link to comment Share on other sites More sharing options...
topofeaturellc Posted December 11, 2015 Share Posted December 11, 2015 Autosheet margins are double the average Link to comment Share on other sites More sharing options...
zenith Posted February 15, 2016 Share Posted February 15, 2016 Pabrai sold out of his position. The stock is actually up for ytd. Link to comment Share on other sites More sharing options...
AzCactus Posted February 15, 2016 Share Posted February 15, 2016 Pabrai sold out of his position. The stock is actually up for ytd. Might be time to go long. Link to comment Share on other sites More sharing options...
jason Posted February 16, 2016 Share Posted February 16, 2016 Pabrai sold out of his position. The stock is actually up for ytd. Still listed as a holding after last 13f on Feb 12/2016. When did he sell it? Link to comment Share on other sites More sharing options...
zenith Posted February 17, 2016 Share Posted February 17, 2016 http://whalewisdom.com/filer/dalal-street-llc and see sec.gov as well, both show he sold all of it. Posco is up 11% ytd, however it is possible he sold for tax loss and will buy back. Link to comment Share on other sites More sharing options...
alwaysinvert Posted March 1, 2016 Share Posted March 1, 2016 http://www.theguardian.com/business/2016/feb/29/china-to-cut-jobs-in-coal-and-steel-sectors Some positive developments for steel. Remains to be seen how effective they will actually be in reducing production. Link to comment Share on other sites More sharing options...
MrB Posted March 1, 2016 Share Posted March 1, 2016 Very skeptical, but hopeful. Monthly steel numbers seem to point in the same direction though See chart. http://www.worldsteel.org/media-centre/press-releases/2016/January-2016-crude-steel-production-.html Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 22, 2016 Share Posted November 22, 2016 Pretty sure I basically bottom ticked this with my sale last year >:( Great job for all who held with more patience than me... Link to comment Share on other sites More sharing options...
ccplz Posted November 23, 2016 Share Posted November 23, 2016 Pabrai sold out of his position. The stock is actually up for ytd. Why do people even care what that guy does? Link to comment Share on other sites More sharing options...
RadMan24 Posted November 23, 2016 Share Posted November 23, 2016 be nice Link to comment Share on other sites More sharing options...
MrB Posted November 25, 2016 Share Posted November 25, 2016 http://www.worldsteel.org/media-centre/press-releases/2016/October-2016-crude-steel-production0.html China has clearly ramped up production this year. With Korea ship building still slumping Posco still facing significant headwinds. Link to comment Share on other sites More sharing options...
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