Turkey Top Steelmaker Hit by August Gloom Inches Toward Recovery
Turkey Top Steelmaker Hit by August Gloom Inches Toward Recovery
(Bloomberg) -- August was a terrible month for steelmakers, and slumping prices coupled with investor concern about the acquisition of British Steel by Erdemir’s largest shareholder made it one of the worst performing Turkish blue-chip stocks in August. Now, analysts are watching for signs of a rebound.
Shares of Eregli Demir & Celik Fabrikalari TAS, as Erdemir is formally known, fell 14% in August, making the stock the second-biggest loser in the Borsa Istanbul 30 Index, a grouping of the most-followed companies in Turkey, after Yapi Kredi Bankasi. Declining steel prices and the prospect of further margin weakness have weighed on the stock, like most of its global peers.
That said, with more than half of analysts’ recommendations on Erdemir as buys, and no sells, it looks as though brokers still favor the stock. After closing up 0.5% in Istanbul on Monday, the stock is extending gains to three sessions, trading at 6.45 liras, after falling to a 52-week low of 6.08 liras on Aug. 22.
In a move forward, the company has begun to dispel fears that its shareholder’s acquisition of British Steel will have spillover effects on the company. The purchase isn’t supposed to impact Turkey’s top steel producer nor have any tangible effect on the stock’s performance, but the news has preoccupied investors, with tough times ahead for an industry in the midst of global trade conflicts.
Ataer Holding AS, which owns 49% of Erdemir, is in exclusive talks to buy the U.K.’s No. 2 steelmaker after it entered liquidation in May. Shrinking demand, surging costs and cheap imports, as well as uncertainty around Brexit all add to investor concern that the Scunthorpe, England-based company may be a problematic investment, demanding a lengthy turnaround.
Oyak Group, Ataer’s parent company, has emphasized that the bid for British Steel won’t have any bearing on Erdemir, and the group has no ambition to merge them, Cemal Demirtas, an analyst at Ata Invest, said. “This acquisition will be ‘asset buying’ rather than a ‘share transfer’ and speculation that the acquisition may impact Erdemir’s production performance looks misleading.”
In a press release in July, Erdemir also said it has no relation to British Steel and any claims that it bid for the U.K. company are unfounded. Oyak didn’t respond to emailed questions.
“After meeting with Oyak Metal Group management, we are more comfortable about the British Steel acquisition bid which isn’t related to Erdemir,” Demirtas said. In sum, Ata Invest sees weaker margins as a buying opportunity.
“Erdemir is one of the most efficient steel producers, utilizing 95% of its capacity,” he said.
--With assistance from Blaise Robinson.
To contact the reporters on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net;Ercan Ersoy in Istanbul at eersoy@bloomberg.net
To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Monica Houston-Waesch, Tom Lavell
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