Ternium SA ADR (TX)TX

Ternium SA ADR (TX) Overview

Company Profile:

History:

Ternium S.A. was originally incorporated in 1948 in Argentina as Sociedad Mixta Siderúrgica Argentina (SOMISA) under a law passed by the Argentine legislature. However, it can be traced back to earlier roots. In 1937, the first steel works began operating at San Nicolás, and in 1942, SOMISA started constructing the main facility that eventually started production in 1948. In 1971, SOMISA was re-privatized and underwent significant privatization again later on in 1992 when Techint Group became its majority shareholder. Today, the company holds the position of leading integrated flat and long steel producer in Latin America.

Core Business:

• Production and sale of flat and tubular steel products
• Mining of iron ore and other raw materials
• Processing of raw materials like steel and finished goods
• Transportation and logistics services related to the company's core activities

Leadership & Structure:

• Executive Chairman: Paolo Rocca
• CEO: Maximiliano Vedoya
• CFO: Damián Miralles
• The Board of Directors comprises 7 members and 3 alternate members.
• The Ternium Group's organizational structure includes various Business Units categorized as Flat Products (Argentina and Mexico), Long Products, Mining, Processing & Logistics.

Top Products & Market Share:

• Top Products: Hot rolled steel; cold rolled steel; coated steel; galvanized steel; tubular steel; wire rods and other long-steel products.
• Market Share: Ternium holds leading market positions in both Argentina and Mexico for flat products. They also hold strong market positions across Latin America for other product categories.
• Competition:
  • Flat Products - U.S. Steel Corporation (X), Nucor Corporation (NUE), Cleveland-Cliffs Inc. (CLF)
  • Long Products - ArcelorMittal S.A. (MT), Gerdau S.A. (GGB), Commercial Metals Company (CMC)

Total Addressable Market:

The global steel market is expected to reach approximately USD 1.49 trillion by 2027, indicating a considerable size of the total addressable market for Ternium and its peers.

Financial Performance:

• Recent Financial Results: In 2022, Ternium reported net revenues of USD 11.79 billion, net income of USD 2.32 Billion, a 63.4% year-over-year increase, and net debt-to-EBITDA ratio of 2.5x as of year-end. The company exhibited solid profitability with an EBITDA margin of 31.2%, exceeding the 28.7% industry average for steel manufacturers. This data reflects a significant financial improvement compared to 2021's net revenue of USD 8.61 billion and net income of USD 1.42 billion.
• Cash Flows & Balance Sheet Strength: At the end of 2022, Ternium had USD 731 Million in total cash compared to USD 2.383 Billion at the end of 2021. Their total liabilities of USD 9.175 Billion and total debt of USD8.717 Billion were outweighed by their total assets reaching USD 16.077 Billion. These figures point toward a robust balance sheet.

Dividends & Shareholder Returns:

• Ternium's historical dividend payout has been relatively inconsistent. However, in 2022, the company paid an annual dividend of USD 0.72 per share, yielding 1.92%. Additionally, the payout ratio increased to 61%. The company also repurchased 6.3 Million of its own shares. In terms of shareholder returns, over the past three years, Ternium has delivered 371.48%, while in the past five years, returns reached an impressive 756.39%.

Growth Trajectory:

• Historical Growth: The company witnessed significant growth in 2022, achieving a remarkable 37% growth in Adjusted EBITDA, driven primarily by better sales volumes and a favorable pricing environment in the Brazilian and Mexican markets. Long term, however, growth has been relatively flat over the past five years.
• Future Projections: Ternium forecasts potential steel market growth for 2022 driven by strong U.S. demand and infrastructure development in Mexico, indicating continued growth opportunities. The company aims to prioritize organic expansion in Mexico, focusing on increasing steel production capacity, optimizing operational flexibility, and expanding product mix, which would provide them with significant growth prospects. The company's growth strategy also involves increasing participation in the non-residential and infrastructure segments in Argentina, and maintaining leading positions for Flat products in Mexico and Brazil.

Market Dynamics:

The industry is currently characterized by high steel prices due to factors such as supply disruptions, strong global demand, and higher costs of iron ore and coal. It's also important to consider factors such as demand fluctuations in sectors like automotive manufacturing and energy, as they significantly impact Ternium's performance in the steel market, leading to potential volatility. The company needs to remain adaptable in its strategy and production, focusing on sectors like renewable energy that offer promising growth potential.

Competitor Analysis:

• ArcelorMittal (MT): World's largest steel producer, offering a stronger global footprint and greater diversification across products, but facing challenges due to the complexity of its operations.
• Nucor Corporation (NUE): Leading producer in the US market, specializing in steelmaking with electric arc furnaces, known for its operational efficiency and focus on higher value-added products.
• U.S. Steel Corporation (X): Major American manufacturer of flat-rolled and tubular products, possessing significant exposure to the automotive sector.

Potential Challenges & Opportunities:

Challenges:

• Volatility in global steel demand and pricing
• Rising raw material and energy costs
• Competition within the industry
• Political Risks in Latin America

Opportunities:

• Growth potential in Latin American markets
• Expanding product portfolio to higher value-added segments
• Technological advancements in production processes
• Partnerships in renewable energy sector

Recent Acquisitions:

• Ternium S.A. does not report any significant acquisitions within the last 3 years. The most recent major acquisition dates back to 2014 when they bought out Siderar S.A.I.C, a major Argentine flat and long steel producer, solidifying their leading position in the country and strengthening their market share. The acquisition also expanded the company's product offerings and allowed for more diverse production.

AI-Based Fundamental Rating:

8 out of 10:

Ternium S.A. presents attractive aspects, including strong recent financial performance, significant market presence in Latin America, ongoing strategic initiatives focused on expanding production and diversification, and promising prospects within the renewable energy sector. However, investors need to keep in mind the inherent risks of operating in Latin America and ongoing external challenges like the current political climate. Overall, the company demonstrates potential for continued growth and shareholder value creation in the years ahead with effective execution of their strategies.

Sources & Disclaimers:

Information for this analysis was gathered from various reputable sources such as Ternium S.A.'s official website, company filings and press releases, Investor Relations presentations, financial statements from providers like Refinitiv Eikon, as well as reliable financial news platforms like Bloomberg and Reuters.

This overview provides a comprehensive picture of Ternium's position and potential. However, it's essential to acknowledge that this is not financial advice, and further due diligence is necessary before any investment decisions are made. It is important to conduct your own research and analysis, and carefully consider your own financial circumstances, risk tolerance, and investment goals before making any investment decisions. Please consult a professional financial advisor for further guidance before investing in any specific company, including Ternium.