Today's smh/age article putting Arrium together with AGO, FMG etc. inspired this)
What is incomprehensible is the markets, analysts and media reports about Arrium is that...
It has TWO significant other businesses.
Mining consumables and Steel which combined produce cash in excess of interest costs.
Also, the very profitable Iron ore business is getting significant tax benefits from the steel businesses previous losses.
Underlying tax was $82m but cash tax paid was only $43m.
That is another 3 cents a share to FY14 profits but management (because they are 'professional' and very competent ) do not include this in underlying earnings.
EVERY question in the Q&A after the FY14 results was about the Steel and Consumables businesses.
The consumables business on its own pays the group's interest costs ($108m cash and lower in FY15) PLUS another $40m left over.
The Steel business is cash flow neutral. But WILL be significantly profitable with just a small 5 cents move lower in the currency which everybody (ok maybe 95% of analysts) expects within 12-18 months if not sooner.
Both have material cost saving benefits from FY14 that will flow through to this years and future years EBITDA.
The mining consumables business is being expanded as it is profitable significantly above the cost of capital.
EBITDA for the consumables business should be at least $250m in 2-3 years time due to increased capacity.
As for gearing at 31%, much lower and everyone would be critical of management having a lazy balance sheet.
As for Iron ore they have enough reserves (78m) for another 6 years at 13Mt. They are investing sensibly now to increase this materially.
NTA is $1.29 and reuters analysts FY15 EPS averages 9.3 * 14 times = $1.30
Isn't it obvious...
The writer implies no investment recommendation. This report contains material speculative in nature. Investors should seek professional investment advice. The writer owns shares in Arrium.
ARI Price at posting:
78.0¢ Sentiment: Hold Disclosure: Held
