OMH: Attractive Takeover Target

The current ferroalloy market is so attractive for smelters like OMH:

(1) Ferroalloy prices at multi-year high: FeSi at US$1,900-US$2,000/ton (OMH cost at US$1,000/ton) and MnSi at US$1,400-US$1,500/ton (OMH cost at US$850/ton).

(2) OMH is a big player in Asia (ex China), with FeSi capacity at 170K ton pa, and MnSi capacity at 330K ton pa.

(3) Potential cashflow generation >US$200m pa

But OMH share price has always been a laggard and current share price is only a fraction of what it should be trading with forward PE of only 3-5x at current spot alloy prices. Part of the reason being its low news visibility leading to low liquidity, and the management’s inability to attract institutional funds despite its PR effort, including the recent Bursa listing which did not live up to expectation and again Bursa suffers from no liquidity.

Even multi-year loss making smelter like Ferroglobe is able to generate more investor interests (and higher liquidity) and more highly valued than OMH.

Current low valuation could make OMH a potential and extremely attractive target for hostile takeover (which include the possibility of hostile investors partnering with existing key substantial shareholders). Potential buyers could be an existing steel or industrial players who can then seriously benefit after the factory gets back to full production when the Covid situation is more contained in Malaysia. This could also be potentially a jewel acquisition for Ferroglobe to get them immediately back to profitability.

OMH low share price now is also attributed to the fact that it is currently being shorted and the short-seller is holding the price down while it tries to cover back its position. This makes the valuation all the more attractive to potential buyers while the short seller helps to the price low. This happens to low liquidity stocks and management not capital market savvy.

If the low price holds out long enough, vultures will come to feast.