Sector: Metals
The price of NLMK’s acquisition of one of the largest US pipe producers, John Maneely Group (JMC), is quite high. However, we believe that the investment should pay for itself, given the potential to vertically integrate JMC with other NLMK assets and the promising outlook for the weldless pipes segment in which JMC mainly specializes.
On August 12, Novolipetsk Steel (NLMK) signed an agreement with Carlyle Group private capital management fund on the acquisition of John Maneely Company (JMC), the largest independent weldless pipe producer in the US. Weldless pipes are used in the O&G industry, and given the growing volume of drilling operations it is possible to see the fundamental potential in the JMC business.
NLMK holds a stake in the JV with US-based steelmaker, Duferco Group, which is one of the largest suppliers of cold-rolled mill products to JMC enterprises. Thus, by purchasing JMC, NLMK will not only diversify its asset portfolio, but reinforce the vertical integration of its business. The transaction will be financed at the expense of a USD 1.6 billion pre-export loan and a USD 2 billion credit provided by three international banks.
Based on the transaction price established in the agreement, the cost of acquisition should equal 7.3 times the EBITDA for the last 12 months, while the ratio of the transaction price to the similar revenue indicator should amount to 1.47. The price of acquisition is far from cheap, but we are upbeat on the company's strategy aimed at the vertical integration of its business in the US. We recommend that investors Hold NLMK shares with a target price of USD 4.06 per share. Sulinov Aleksey
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NLMK
Capitalization: $5 333 972 243,60
Common shares:
Price: $0,89
Delta week: 29,0%
Delta month: -6,3%
Delta year: -77,8%
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0.569
0.073
