Optimistic on Siderúrgica Nacional – Analyst Blog

Companhia Siderúrgica Nacional’s (SID) first quarter 2010 EPS was R$0.64 or 36 cents, up from R$0.47 or 20 cents in the year-ago quarter. Reported EPS surpassed the Zacks Consensus Estimate of 16 cents. Siderúrgica Nacional posted a quarterly net income of R$481.6 million (US$269.7 million), representing an increase of 30.6% year over year from R$368.8 million (US$158.6 million) in the first quarter of 2009.

 

During the quarter, net revenue bloated to R$3,184.6 million (US$1,783.4 million) from R$2,444.0 million in the corresponding quarter of 2009. This represented an increase of 30.3% year over year primarily driven by an increase in sales volume in the domestic market, where prices are normally healthier than abroad.

 

Gross margin grew by 13% and operating margin increased by 10.8%. This was due to a decrease in G&A (General & Administrative) expense by 90 basis points. EBITDA almost doubled to R$1,304.5 million (US$730.5 million) in the first-quarter from R$682.6 million (US$293.5 million) in the year-ago quarter. First quarter 2010 EBITDA margin stood at 41.0%, up by 13.1% from the first quarter of 2009 margin of 27.9%.

 

As on March 31, 2010, net debt totaled R$6,609.0 million (US$3,701.0 million), up from R$6,276 million (US$3,640.1 million) at the end of the previous quarter. The increase was attributable to the huge payment of dividends and increase in capital expenditure.

 

The medium-term growth outlook of the company is encouraging based on various projects being carried out by the company. Moreover, Siderúrgica Nacional has entered the cement business, which will provide synergies.

 

Moreover, the improvement in the demand and prices of steel seems to be encouraging. The World Steel Association has forecasted a 10.7% increase in global steel demand in 2010 and a 5.2% increase in 2011 compared to 2010. However, we reiterate our Neutral recommendation on the ADR based on the uncertain economic environment.