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Ternium S.A.: Dividend Suspension May Lead Us To Lighten Up Position

Published Sun, 31 May 2020 05:44:26 -0400 on Seeking Alpha

We are strong proponents of dividend-paying stocks for our long-term investment picks.
Ternium suspends dividend to protect liquidity amid elevated uncertainty. Ternium has ample cash flow to pay the dividend.
The firm also does not return money to us through aggressive share buybacks.
We doubled down on our position pre-Q1 earnings due to strong fundamentals.
We may liquidate some of our position on a swing high at the end of its present rally.
As we stated in a recent article, we increased our position in Ternium (TX) in the first quarter. We had multiple reasons for doing this, such as the very keen valuation and the generous dividend on offer. In just over a month, the second tranche of shares we bought are up just over 11% as shares are now trading at approximately $15.60.
EBIT came in at $135 million in the first quarter which meant that the company was forced to report a loss in EPS due to the $189 million non-cash deferred tax loss as a result of unfavourable Mexican Peso forex headwinds.
A more attractive figure further up the income statement in the first quarter was the company's EBITDA which came in at an impressive $302 million. Management stated on the first-quarter earnings call that they were actually projecting a better number here. However, due to strict lockdowns in Colombia and Argentina, shipment numbers suffered in the first quarter despite the fact that the firm had orders on hand.
Operating in such an open industry, Ternium will need volumes to remain elevated in order to compensate for the drop in the price per ton. Although, for example, volumes increased sequentially in the first quarter, revenue decreased by 2% per ton.
We have stated before why Ternium is our principal pick in the steel sector. It is at precisely these times (when demand and price subsided) that the best operators invariably come to the fore. However, to protect the firm's balance sheet and liquidity position, management took the unusual step of... Read more