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Acerinox: Stainless Steel With A Confirmed 7% Dividend (OTCMKTS:ANIOF)

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Introduction

I have been keeping an eye on Acerinox (OTC:ANIOF) (OTCPK:ANIOY) for the past two years, and in an April 2019 article I was very satisfied to see the dividend yield increase to 5.4% based on the share price of around 9.25 EUR back then. Since that article, a lot has happened as Acerinox pursued an interesting value-add acquisition in the specialty metals business (to have less exposure to the more cyclical nature of its core business) and I was looking forward to see how the company is getting through the COVID-19 pandemic.

Source: Yahoo Finance

Acerinox has a primary listing on the Madrid Stock Exchange where it’s trading with ACX as ticker symbol. The average daily volume of almost 700,000 shares is clearly superior to the volume on any of the secondary listings. The current market capitalization is approximately 1.9B EUR.

The H1 results were quite strong

Acerinox obviously wasn’t able to get through the COVID-19 pandemic unharmed as its revenue decreased by almost 5% to 2.33B EUR, and this resulted in an operating profit of just 33.7M EUR, down more than 60% from the 99.6M EUR in H1 2019. However, as you can see in the image below, the low operating income was caused by a 42.5M EUR impairment charge, and excluding this impairment, the operating profit would have been around 76M EUR, just 24% lower than in H1 2019.

Source: H1 2020 financial results

And that’s actually pretty decent as the 110M EUR revenue reduction resulted in a reduction of the operating income by just 23.5M EUR.

As Acerinox also wrapped up a relatively sizable acquisition last year, its net finance expense of almost 15M EUR was higher than the 8M EUR in H1 2019, and the pre-tax income fell to 22.4M EUR. We also see how Acerinox was hit with a 24.1M EUR tax bill for a tax pressure of almost 110%. As you can probably guess, this is related to non-recurring items. The high tax bill is related to the impairment charges and Acerinox’s decision to not use deferred tax assets right now. In a normalized scenario, the tax bill would have been around 7-8M EUR and Acerinox would have reported a profit.

So although the net income is negative, it’s pretty clear the reason for the net loss are the non-cash impairment charges, and I expected the cash flow statement to show a healthy amount of free cash flow coming in.

Acerinox recorded an operating cash inflow of 75.1M EUR (including a 26.7M EUR tax payment) and a 34M EUR investment in the working capital position. Adjusted for these WC changes as well as the difference between taxes paid and taxes due (and I will use the recorded tax bill in the H1 2020 income statement), the operating cash flow of 111M EUR was more than sufficient to cover the 53M EUR capex and Acerinox reported a positive free cash flow result of around 58M EUR or 0.215/share.

Source: H1 2020 financial results

The dividend will be paid out later this year

The company had originally suspended the payment of the 0.50 EUR dividend it had previously declared over FY 2019. The Annual General Meeting will be held next week (on Oct. 22 ) and will decide on the dividend and we can reasonably expect the dividend proposal to be approved.

The 0.50 EUR represents the same dividend as a year ago, which means that based on the current share price of just over 7 EUR, the dividend yield is just north of 7%, a pretty appealing yield. The dividend withholding tax in Spain is 19%, but the country obviously has double taxation treaties in place with most other first world countries to reduce the tax burden.

The dividend will cost Acerinox approximately 135M EUR and will be paid out in two tranches. A first tranche of 0.40 EUR will be payable on Dec. 2 while the second smaller tranche of 0.10 EUR will be paid one day later on Dec. 3 as a share premium refund (which may have a different taxation, depending on the jurisdiction of the shareholder).

As of the end of June, Acerinox had in excess of 1B EUR in cash on its balance sheet and a net debt of approximately 870M EUR, so the balance sheet is strong enough to make the 135M EUR payment even though the H1 2020 net los and incoming free cash flow indicate the dividend payment isn’t fully covered.

Source: company presentation

Investment thesis

I was very encouraged by Acerinox’ H1 results and I hope the company can confirm it’s on the right track when it publishes its Q3 and H2 results. Acerinox management must be pretty confident in continuing to perform well considering it’s keeping the dividend unchanged compared to last year’s dividend, and considering the dividend will be fully paid in cash.

At this point, the option premiums are pretty low. Writing a P7 for December would yield an option premium of less than 0.60 EUR which means there will barely be a premium at all considering a 0.50 EUR dividend will be detached and paid out by then. I noticed most option premiums for the next two months are pretty low at Acerinox, so perhaps the market maker is waiting for an official ex-dividend date before updating the option premiums?

In any case, Acerinox is a “hold” in the Nest Egg Portfolio where we have a very small position of just around 1% of the portfolio value.

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Disclosure: I am/we are long ANIOF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Investors line up for Ant Group’s record $34.4 billion IPO By Reuters

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© Reuters. FILE PHOTO: Ant Group logo is pictured at the Shanghai office of Alipay, owned by Ant Group which is an affiliate of Chinese e-commerce giant Alibaba, in Shanghai

2/2

By Julie Zhu and Scott Murdoch

HONG KONG (Reuters) – Ant Group Co Ltd (HK:) is poised to raise up to $34.4 billion in the world’s largest stock market debut as investors rush to buy into the fast-growing Chinese fintech giant despite risks of greater scrutiny at home and abroad.

The dual listing, a first for Shanghai’s Nasdaq-style STAR Market and Hong Kong, would value Ant at about $312 billion before a so-called greenshoe option for a 15% overallotment of shares.

At that valuation, Ant is worth more than Industrial and Commercial Bank of China (SS:), the world’s biggest bank by assets. The money raised will also shatter the record set by oil major Saudi Arabian Oil Co ( Saudi Aramco ) (SE:) with its $29.4 billion listing last December.

Jack Ma, the billionaire founder of Ant and affiliate Alibaba Group Holding (HK:) (N:), said it was a “miracle” that such a large listing is taking place outside New York.

Ant’s looming market debut had been clouded by concerns over growing regulatory scrutiny at home for its lucrative consumer credit business as well as a U.S. State Department proposal to add the company to a trade blacklist.

Global investors, however, have largely shrugged off those concerns as they bet on continued rapid growth of a group that also operates China’s biggest mobile payments platform and distributes wealth management and insurance products.

“The fear of missing out and the lack of other opportunities of this calibre” was spurring investor interest in the IPO, said Justin Tang, head of Asian research at investment adviser United First Partners in Singapore.

BOOKS OVERSUBSCRIBED

Ant’s order books on the Hong Kong offering to institutional investors was oversubscribed one hour after the launch, two people with direct knowledge of the matter said.

Many prospective investors placed orders worth at least $1 billion in the first hour, said one of the sources, adding that the number of the institutional orders could reach about 1,000.

Ant declined to comment on investor demand.

Headquartered in the Chinese city of Hangzhou, Ant is aiming to raise about $17.2 billion in Shanghai and roughly the same in Hong Kong.

The group has earmarked 80% of its domestic offering to 29 strategic investors that will be locked up for at least one year. A wholly-owned unit of Alibaba has agreed to purchase 44% of the Shanghai float.

Other strategic investors in the Shanghai float include China’s National Council for Social Security Fund, a unit of Singapore state investor Temasek Holding, as well as Singaporean and Abu Dhabi sovereign wealth funds GIC and Abu Dhabi Investment Authority.

Large Chinese insurers and mutual funds will also have shares allocated via the strategic investor route, Monday’s filing showed.

RECORD DEBUT

Ant shares are expected to start trading in Hong Kong and Shanghai on Nov. 5, two days after the U.S. election.

The company set the price tag for the Shanghai leg of the listing at 68.8 yuan ($10.27) per share and HK$80 ($10.32) per share for the Hong Kong tranche, the exchange filings showed.

The price represents a multiple of 31.4 times Ant’s 2021 earnings and 24.2 times its 2022 earnings forecast, said a source with direct knowledge of the matter.

By comparison, Alibaba is trading at 34.28 times trailing 12-month earnings in Hong Kong.

Ant declined to comment on the price multiples.

The group’s China listing would eclipse the record set there previously by Agricultural Bank of China (OTC:)’s (SS:) $10.1 billion float in 2010. The record in Hong Kong was set by insurance major AIA’s $20.5 billion offering in 2010.

The bookbuilding for the Hong Kong leg will run from Monday to Friday, while books for the Shanghai leg open for one day on Thursday.

Ant’s IPO would also serve to burnish STAR’s status.

Companies raised $22.5 billion via IPOs and secondary listings on STAR between the start of the year and mid-October, making it the third-biggest stock market behind Nasdaq and Hong Kong, Refinitiv data shows.





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Dow Slumps as Record Surge in Infection Triggers Bloodbath By Investing.com

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© Reuters.

By Yasin Ebrahim

Investing.com –The Dow fell sharply Monday, paced by a rout in value stocks on fears the recent spike in Covid-19 infections could weigh on the economic recovery amid fading hopes for U.S. stimulus before the election.

The fell 3.32%, or 942 points. The was down 2.86 %, while the fell 2.77%.

Coronavirus infections in the U.S. hit a record, adding more than 85,000 through Saturday, Bloomberg reported, after surpassing the previous record on Friday of 83,757 new cases.

Little sign of progress on stimulus talks, meanwhile, dimmed expectations the economy would receive a fiscal boost before the U.S. election on Nov. 3.

House Speaker Nancy Pelosi is reportedly waiting for another counteroffer from Treasury Secretary Steven Mnuchin, but as there remains sizable disagreement over key issues “reaching a deal ahead of the November election appears improbable, if not entirely impossible,” Stifel said in a note. Pelosi is reportedly set for further talks with Mnuchin at 2:00 PM ET (1800 GMT).

Energy and industrials led the move lower in value stocks, with the latter down on heavy selling in airline stocks as the spike in cases raised concerns that restrictions to curb infections could prompt airlines to cut capacity further. 

American Airlines (NASDAQ:) and Delta Air Lines (NYSE:) were down more than 7% while United Airlines Holdings Inc (NASDAQ:) slumped 8%.

Financials gave up some of their gains from last week as banking stocks were abandoned after Treasury yields reversed sharply, with down 5%.

JPMorgan Chase (NYSE:) and Bank of America (NYSE:) fell 3%, while Citigroup (NYSE:) slipped more than 2%.

Tech, which had led the rally since the mid-March bottom, added to the broader market selloff, with the Fab 5 nursing losses.

Amazon.com (NASDAQ:) and Apple (NASDAQ:) were down about 1%, while Facebook (NASDAQ:), Google-parent Alphabet (NASDAQ:) and Microsoft (NASDAQ:) fell more than 3%.

Facebook, meanwhile, said it would launch a game streaming service to rival Google’s cloud gaming service Stadia.

Positive news on the vaccine front from AstraZeneca, meanwhile, did little to keep losses in check.

AstraZeneca PLC ADR (NYSE:) rose more than 1% after the company said its coronavirus vaccine candidate had triggered an immune response in both younger and older adults.

On the economic front, the rapid growth in housing activity slowed in September, with some warning of further slowing to come.  fell to 959,000 last month from 994,000 a month earlier, missing forecasts of 1 million.

“The single-family housing market is still registering strong demand … however, record-low supply is pushing up prices even faster, which is hindering potential buyers from affording new homes,” said Grant Thornton Economist Yelena Maleyev. “This will be exacerbated by the lack of additional COVID-19 support from Congress; the scars of this recession will run deep,” Maleyev added.





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Wall Street extends slide on virus worries, elusive stimulus deal By Reuters

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© Reuters. FILE PHOTO: The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City

(Reuters) – U.S. stocks extended their slide on Monday, setting the Dow for its worst day in more than seven weeks, as soaring coronavirus cases and a deadlock in Washington over the next fiscal relief bill raised concerns over the economy and corporate earnings.

At 12:17 p.m. ET, the was down 731.56 points, or 2.58%, at 27,604.01, the S&P 500 was down 70.49 points, or 2.03%, at 3,394.90, and the was down 188.60 points, or 1.63%, at 11,359.68.

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