In the current situation, the steel division is increasingly becoming a millstone for the people of Essen. Will the business be sold or will the state join in? The situation at thyssenkrupp, what analysts say and what the stock does.
THE SITUATION AT THYSSENKRUPP:
The corona pandemic hits Essen at the wrong time. Because actually Group boss Martina Merz had planned to radically rebuild the lurching company and get it back on track. In future, the focus will largely be on materials trading and industrial components. Everything else is up for grabs, the management wants to keep as many options open as possible.
The renovation was to be financed with the 17 billion euros from the sale of the elevator division and the high debt to be reduced. But now thyssenkrupp is running out of time. The Corona crisis throws the Essenes in the original plans by the bill, in this financial year, the management expects a billion dollar loss.
The focus is on the traditional steel division. thyssenkrupp is currently examining all options for its business, which is particularly suffering from the corona pandemic. Partnerships, a partial or complete sale are possible. There are no “prohibitions to think”, Merz had recently declared. The division is struggling with the high dependency of the currently ailing automotive industry, the entire industry is under price pressure and groans under too high capacities.
In addition, massive investments in climate-friendly production are necessary. The group had already tried to merge its steel business with Tata Steel Europe, but failed because of the European antitrust authorities.
With the British competitor Liberty Steel, an interested party who wants to take over the steel business had recently reported. However, it is unclear whether this will happen. The IG Metall union has already spoken out against it. thyssenkrupp has announced an examination, but wants to speak to other potential partners at the same time. The Swedish SSAB and Tata Steel Europe were also interested, it said.
At the end of October, however, there were media reports that SSAB is said to have been keeping an eye on parts of Tata Steel’s European business – which should not improve thyssenkrupp’s negotiating position. A merger with the German Salzgitter group also seems unlikely at the moment because of the high financial risk. Salzgitter has already rejected a merger several times.
thyssenkrupp has been losing money for years; for the past fiscal year (to the end of September), the Group has announced cash outflows in continuing operations of 5 to 6 billion euros. In the steel sector alone, losses of up to a billion euros are likely to accumulate, it was said last summer. The group plans to present its figures for the 2019/20 financial year on November 19.
The calls for the state to intervene are therefore getting louder. The employee side has been vehemently calling for this for months, be it by the federal government or the state government in North Rhine-Westphalia. The NRW-SPD also recently called for state participation in the steel division. The federal and state governments were initially opposed to this. According to media reports, however, there have recently been talks about possible solutions, which should, however, focus on helping everything to convert production to low-carbon steel.
WHAT ANALYSTS SAY:
For years, market experts have been criticizing the billions in cash outflows at thyssenkrupp. Therefore, some analysts consider a sale of the steel division, which is largely responsible for this, not a bad solution. However, there are also critical voices. The full sale could be visually attractive as it would further strengthen the balance sheet, wrote JPMorgan analyst Luke Nelson, for example.
This could reduce liabilities, and thyssenkrupp would also quickly get rid of the heavy burden of negative liquidity outflows. However, Nelson indicated, among other things, that the sale to a competitor such as Liberty Steel would increase the antitrust risks. In addition, important interest groups such as trade unions have already expressed their rejection of the proposed deal.
Analyst Dirk Schlamp from DZ Bank sees thyssenkrupp in a weak negotiating position. The offer price could be below the Group’s expectations. A Deutsche Stahl AG, together with Salzgitter, is currently not possible.
When looking at the numbers, the experts see red. Although the development in the fourth quarter is unlikely to be quite as disastrous as in the previous quarter, analysts are expecting another operational loss in a consensus published by the company. The free outflow of funds is likely to have reached the billion mark again. For the entire financial year, the average estimate of the cash outflow is a good 5 billion euros. Here, too, you can see the results in deep red.
The focus is on the further development of the group. Analyst Bastian Synagowitz from Deutsche Bank expects a negative cash flow for 2020/21 as well.
WHAT DOES THE SHARE DO:
A look at the chart in the thyssenkrupp paper clearly shows the extent of the misery and decline in recent years. From prices above the mark of more than 30 euros in mid-2011, things gradually went down. The group’s many problems pushed the price into the single-digit range up to August last year – and then Corona came this year.
The pandemic and worries about the company’s financial situation dealt another blow – in the spring a thyssenkrupp share cost significantly less than four euros at times. The paper was initially able to recover from this to over 7 euros in the summer. But that too quickly fizzled out.
Concerns about the high financial requirements and further setbacks caused by the corona quickly caused this recovery to burst again. At the beginning of October, the paper slipped again below the 4 euro mark, and Liberty’s expression of interest in taking over the steel business only gave a brief boost. The share recently hovered around the 5 euro mark.
This means that there is a loss of almost 60 percent in the current year. In the long term, the balance sheet is even bleak, seen over five years, shareholders had to accept a loss in value of more than 70 percent. The most important shareholders are the Krupp Foundation and the Swedish financial investor Cevian.
The market capitalization is just around 3 billion euros. This means that the former DAX company ranks at the bottom of the MDAX mid-range segment. The long-established company is miles away from front runners such as Airbus (68 billion euros), Siemens Healthineers (42 billion euros) and Sartorius (27 billion euros).
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