Wednesday, August 4, 2010

Ternium: Still Undervalued

Yesterday, Ternium (TX) announced Q2 earnings and today the market is proving that no good deed goes unpunished.  The company has generated $382 million in free cash flow in the first half of 2010.  Net income for the quarter was $187 million.  Shipments (6%), revenue (17%), and operating income (22%) all rose vs. Q1. 

The benefits from Sidor, the confiscated Venezuelan subsidiary, continue to flow as the Chavez government pays off its $1.9 billion debt to Ternium.  $263 million was paid in May, bringing total payments to $1.5 billion.  Ternium still expects to collect $446 million (approximately $200 million on/about August 9th and the remainder on/about November 7th).

Even without this cash, Ternium's balance sheet showed $2.6 billion of cash against $2 billion of debt.  Result: $600 million of net cash, even after a $138 million June dividend payment.

Yet for all the good news, Ternium still garners a market value of only $6.8 billion. 

Over the next 13 weeks, Ternium should collect its remaining debt from Hugo.  This cash plus any free cash flow should push net cash over $1 billion by year-end.  

In the meantime, Ternium continues to retire maturing debt (including $250 million in July) and pay periodic dividends with its flood of cash.  Investors can't ignore this forever.

Disclosure:  Author owns TX shares.


  1. Nice job not posting the comment but cleaning up the entry. You just lost a reader.

  2. Anonymous,

    I cleaned up the article... removed the entry you cited and realized that the article didn't need any comparison to X to stand alone.

    Your comment was posted. I read it. I appreciate it. And when I rewrote the article (to eliminate the error you cited) the comment was lost.

    Sorry you appear to be upset. But I actually responded to what your wrote. And so I don't understand your anger.

    But if you no longer wish to read my blog, I'm sorry to lose you. And appreciate your help on this article.

  3. This is one of the best websites I've found for intelligent analyses of value investing situations. Keep up the great work Lonely Value Investor. There are readers out there who appreciate your posts!.

  4. Thank you. Just wish they weren't all Anonymous! ;-)

  5. I agree with Anonymous! Excellent website. I highly enjoy your comments and analyses.

  6. I too highly enjoy your posts. Thank you for sharing.

  7. Hi Lonely value,
    I do read your post regularly.
    As for TX, the counter doesnt seem to be cheap though? Any considerations I missed out?

    Possibly $1b cash to $6b mkt cap. possibly alos 10-12x free cashflow. Any business advantages and intrinsic network value?