Metal makeover

A Steely Resolve

Is it me or is it hot in here?
  • Why it matters

    Why it matters

    ThyssenKrupp has undergone a painful restructuring, but is still struggling to compete in an environment where global steel prices are falling because of excess capacity and declining demand.

  • Facts


    • ThyssenKrupp had losses of €1.5 billion ($1.89 billion) in 2013, and €5 billion in 2012.
    • This year, its stock price has risen by almost 18 percent.
    • The company’s steel business now makes up less than 30 percent of sales volume.
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Germany’s largest steelmaker, ThyssenKrupp, has been feeling the heat of the furnace recently. The company has suffered losses in each of the past three years, a period viewed as the most serious crisis in its history. As a result, the industrial conglomerate has not been a good investment for a long time.

Since 2009 – a period when Germany’s DAX blue chip stock index rocketed up by 75 percent – ThyssenKrupp’s stock has fallen by 13 percent. In the past two years, the firm, formed 15 years ago after the merger of the two venerable institutions that make up its name, has paid no shareholder dividends.

But this year, the steelmaker’s stock began to recover. Its value has increased by almost 18 percent since the beginning of January, the best performance on the DAX this year. Investors seem confident that ThyssenKrupp’s chief executive, Heinrich Hiesinger, is steering the company to calmer waters.

Mr. Hiesinger took over at the end of 2011 and immediately set about restructuring the company. He cut the workforce and sold loss-making operations, including an almost brand new $5 billion steel mill in Alabama. He has also tried to refocus the company on technology and its other valuable businesses, such as elevators, where it is one of the world leaders. In the process, ThyssenKrupp’s steel business shrank to less than 30 percent of sales volume.

The value of the steelmaker's stock has increased by almost 18 percent since the beginning of January, the best performance on the DAX this year.

In August, ThyssenKrupp reported earnings that further fueled investor hopes. The company, based in the industrial Ruhr Valley in northern Germany, is due to make a profit for the first time in years. In the first nine months of the current financial year, it earned €243 million ($307 million). This is a remarkable turnaround from the two preceding years, in which losses were €1.5 billion and €5 billion.

Despite its restructuring successes, ThyssenKrupp still faces big challenges. The company has been able to increase earnings, but has not yet produced solid profits. As a result, market experts are unsure how to rate its stock. Fourteen analysts advise buying, while twelve suggest selling. Another twelve others say it’s best to hold on to the stock.

Dirk Schlamp, an analyst at DZ Bank, does not currently see much potential for the stock to rise further. He argues that the restructuring has been factored into the valuation and that makes the stock expensive. “It is true that under (Mr.) Hiesinger’s leadership, ThyssenKrupp has clearly stabilized,” Mr. Schlamp said. “But restructuring will continue for years.”

ThyssenKrupp’s blast furnaces are running at capacity, but they are barely making any money.

He also said the company continues to suffer in a weak steel market. ThyssenKrupp’s blast furnaces are running at capacity, but they are barely making any money because of falling steel prices – a result of excess capacity and declining demand in southern European countries suffering weak economic growth.

But Christian Obst, an analyst at Baader Bank, believes ThyssenKrupp is a good buy. He forecasts €25 ($31.50) as the upside target for the stock, which currently trades at €21 per share. “Investors will continue to profit from restructuring,” he said.

Mr. Obst pointed out that the steel giant has announced plans to sell more divisions, meaning ThyssenKrupp stock should continue to get a boost for at least the next 12 months, he said.

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The author is currently working on Handelsblatt’s finance desk. To contact the author: gastautor@handelsblatt

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