Wednesday, November 11, 2009

Ternium's New Highs

When does something become so obvious that everyone knows about it?

In the case of Ternium, that point is approaching. For proof, look no further than Citigroup's announcement today that Ternium is a BUY.



If anyone has access to the report, please pass it along. Can't wait to see the reasoning. Do you think they discussed (or even know) that only 15% of Ternium shares float? I doubt it.

Ternium's November 4th earnings release was probably the catalyst (excuse). It was an eye-opener for the uninitiated. Without getting lost in the minutia, TX has nearly $2 billion in cash and $2.4 billion in debt. In 9 months, the company has generated $900 million in free cash flow and another $666 million from it's forced sale of Sidor to Venezuela. Ternium used $1 billion of this cash flow to pay down debt. Not bad for a company with a $6 billion market cap.

Hey, Citi... the market cap was $1.5 billion when you downgraded the stock! You really can't make this stuff up. Sorry, I digress.

The Sidor expropriation is a gift that keeps on giving. Chavez picked a bad time to "steal" Sidor from Ternium. The company expects to receive another $1.3 billion in payments from Venezuela over the next year (another $287 million was received this month). That cash will ensure that Ternium has ZERO net debt by this time next year. Actually net debt will probably be negative.

So Citi is finally catching on. Normally I'd be thrilled, but let's recap Citi's recent history with Ternium. On Novermber 7, 2008, the Citigroup analyst downgraded the company from a BUY to a HOLD.

So one year ago, with TX shares trading at $7 a share, Ternium was a HOLD. Today, at $29 to $30 a share, it's a BUY?

I'm bullish on Ternium for all the reasons discussed above and elsewhere on my blog in recent months. But this Citigroup call gives me pause. I must be alone. Investors (obviously impressed with Citi's astute observations) pushed TX shares to a 52 week high above $31 a share today. They have short memories.

For now the fundamentals discussed above will keep me in Ternium. Besides, we still have Goldman. They cut Ternium to Neutral on October 9, 2008 when the shares traded at $9.98 a share. Ternium will probably go to $40 before they finally come around.

When that upgrade comes along, there will be no debate. SELL.

Where is that darn resume anyway?!?

Disclosure: The author STILL owns shares of Ternium.


  1. I think the price move may also be due to calls that institutional investors are getting from TX' PR firm: they called me two days ago asking for my anonymous input on what I thought of the results, what I thought of management and their communications w/ investors, and most importantly what I saw as the best use of the cash balance INCLUDING THE POSSIBILITY OF A SPECIAL DIVIDEND. Management cares about the shareholders, evidently.

  2. My communications with the company have been excellent and very productive. They are exceedingly responsive.

    I'm very glad that there is a discussion about a special dividend. Due to the low float, there will be no stock repurchase. At some point, they may just buy out the minority public investors. No partial buyback though.

  3. did you get a copy of the citi report on tx. i have one. john in stl