Anders Hägerstrand: Avoid SSAB – Dagens Industri

SSAB’s adjusted operating earnings in the fourth quarter showed a loss of 802 million kronor (SEK). The three main business areas in the red and the result was slightly lower than expected.

However, is not the weak performance by the stock market focuses on today. It was broadly in line with expectations.

There are two other important explanations for the shares rush:

First to SSAB’s operating cash flow of 1.8 billion (bn) in the fourth quarter was approximately 400 million better than the same quarter last year, despite the significantly weaker market conditions.

the second factor that is very important is that SSAB’s CEO Martin Lindqvist continues to cut costs in an excellent way.

Now, the company expects with the synergies from the acquisition of Rautaruukki be 1.8 billion annual rate instead of the 1.4 billion with full annualized from the second half of the year in 2016.

in addition, SSAB made decisions to cut further in the Nordic operations and reduce staff by up to 460 people. In 2016, SSAB through synergies and other efficiencies to reduce costs by a total of 1.25 billion compared with 2015.

Despite this, is an inescapable fact that the Company’s balance sheet is far too weak. This is especially true given the company’s current earnings generation, the situation on the steel market with the large net exports from China, and the uncertain economic situation. Net debt at the end of the year, the entire 23.2 billion kronor. This can, for example, compared with the company’s market capitalization is 11.0 billion on Friday morning.

The bankers who have large loans to SSAB will this Friday to read the company’s report very carefully. And even though cash flow is far from certain that they provide particularly uplifting comments in their follow-up discussions with SSAB’s Group Executive Committee.

Many market will obviously interpretation that today’s report reduces the likelihood of a new issue and therefore rushing shares. We disagree. The probability of SSAB makes a rights issue this year remains high. Expect, therefore, that concerns about the balance sheet continues to burden share in the coming months.

We stand in the main scenario that the final use of the share multiannual negative trend, when the company makes a new issue eliminating financial turmoil