Stelco

Stelco is a Canadian integrated steel manufacturer that was at one time part of the US Steel Group. Its present corporate set-up followed its divestment by US Steel and a re-structuring and 2017 IPO.

Stelco is in a cyclical sector. As such, I analyzed and valued Stelco based on its performance over the cycle. The challenge with Stelco is that data was only available from its IPO year of 2017.

Given this, I took the 2018 to 2020 average values to represent the performance over the cycle. This is based on looking at the past 20 years’ steel cycle pattern and ignoring the past year or so prices.

Stelco is fundamentally strong with a strong growth track record.

It is financially sound. As of Jun 2022, Stelco has a Total Capital Employed of CAN$ 2.6 billion. About ¾ of this is funded by equity. The company is cash rich with cash accounting for about 57% of the Total Capital Employed.

It has a good track record. Compared to the top 4 US steel companies, Stelco’s revenue growth and ROA stand out as illustrated in Charts 3 and 4.

It has a Piotroski F Score of 8 for 2021.

There are margins of safety based on its EPV over the cycle matches the current market price. There are other upsides because of Stelco’s growth track record. At the same time, the steel demand is expected to grow given the recently passed infrastructure plan.