CA - Algoma Steel: Canadian Steel At 3.5 Times The LTM EBITDA

2024-06-26 10:30:00 ET

Summary

• Algoma Steel Group Inc. faced challenges in FY 2024 due to weak steel prices and a structural corridor failure, impacting financial performance.
• Despite challenges, Algoma Steel reported profitability and strong operating cash flow, with plans to commission a new Electric Arc Furnace.
• The company's investment thesis remains positive, with potential for improved margins and outsized EBITDA and free cash flow results post-EAF commissioning.

Introduction

I have been following (and have had a long position in) Algoma Steel Group Inc. ( ASTL , ASTL:CA ) since the company went public using a SPAC . The company definitely benefited from the strong steel market right after the COVID pandemic, but the steel price has gotten much weaker, which had an immediate impact on Algoma’s financial performance. Fortunately, the company’s sustaining capex is pretty low, and it was able to count on the Canadian government to provide funding for the electrification of its production. The new Electric Arc Furnace will be commissioned soon, and that means the cash drag will be over....

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