What I am curious about. IF the brokering houses all have a currency forecast in low 80 cent range for 2016. THEN the FY16 EPS number for Arrium should reflect this. Steel EBITDA WILL increase, as was the case 5 years ago when the currency was at that level. It is not wishful thinking or a 'maybe'. Just a modest increase in EAF utilization will increase profits significantly.
I had as part of my investment thesis for Arrium...
Iron ore at $100 for FY15 and FY16 AND a currency of 85 cents.
No other Iron Ore business gets the benefit of higher iron ore prices in AUD due to a lower currency
PLUS
Increased Steel EBITDA at 1 cent per $1 move 'ish'.
The KEY is that this will continue for years and ARI's significant steel assets will start producing EBIT and the market will like that.
Ideally I would like to see a mix of EBITDA something close to...
Now that is a GREAT business performing in a 'holy grail' of vertical integration manner.
Arrium should have a multiple of 13x at least.
Just need the US to start raising interest rates and a lower AUD will result.
It should all happen sometime in the next 12 months. Everyone from David Gruen (treasury) to Glenn Stevens etc. has said so.
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:
77.7¢ Sentiment: Hold Disclosure: Held
