Analysts Slash Steel Company Valuations by 18%

July 23, 2012 8:37 AM EDT
Analysts at BCS Financial Group downgraded 2012 EBITDA and cut valuation by 18 percent for companies in the steel sector. According to a Friday report by analysts Oleg Petropavlovskiy and Eduard Badaev, steel companies will continue to face a difficult short-term environment due to declining global demand. On a medium and long term basis, the analysts are more optimistic.

Top names in the sector include integrated companies such as Everaz and Steversal, say analysts. BCS has Buy ratings on both of these companies. At the same time, they expect MMK and Michel, two notable underperformers, to rebound.

"Due to a deteriorating macro environment, we downgraded our forecast of sector companies’ 2012 EBITDA and their valuation by an average of 18%," stated the analysts. "We continue to favor integrated steelmakers and underperformers."

"The probability is high that steel prices will rebound from the current level, in our view," continued analysts. "The average HRC price for Europe, Asia, US and Russia stands at only $600/t, according to Bloomberg and our calculations. Consequently, we believe world steelmakers will press buyers for higher prices."

Capacity shutdowns should also help support steel prices.

Severstal - Buy
MMK - Buy
NLMK - Hold
TMK - Hold (downgrade)
Mechel -Buy
Raspadskaya - Hold
Korshunovskiy – Buy

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