Algoma Steel Group Inc. (ASTL.TO) | Investment Case

1. Company Snapshot

1.a. Company Description

Algoma Steel Group Inc.produces and sells steel products primarily in North America.It provides flat/sheet steel products, including temper rolling, cold rolled, hot-rolled pickled and oiled products, floor plate, and cut-to-length products for the automotive industry, hollow structural product manufacturers, and the light manufacturing and transportation industries; and plate steel products that consist of rolled, hot-rolled, and heat-treated for use in the construction or manufacture of railcars, buildings, bridges, off-highway equipment, storage tanks, ships, and military applications.

Algoma Steel Group Inc.was founded in 1901 and is headquartered in Sault Ste.Marie, Canada.

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1.b. Last Insights on ASTL

Algoma Steel Group Inc.'s recent performance was negatively impacted by widening net losses and declining revenue, primarily due to the bite of U.S. tariffs. Despite a 19.8% revenue growth forecast, the company's losses accelerated by 58.9% annually over the past five years. Moody's downgraded its corporate family rating to Caa1 from B3, citing concerns. Additionally, RBC Capital cut its price target to C$8 from C$10, maintaining a Sector Perform rating. The company's Q3 earnings report showed a net loss widening, despite beating revenue estimates.

1.c. Company Highlights

Last Price	6.14
Change Percentage	1.32%
Open	5.98
Previous Close	6.06
Market Cap ( Millions)	644
Volume	269890
Year High	14.37
Year Low	4.2
M A 50	5.56
M A 200	7.14

FCF Yield	-65.71%
Dividend Yield	2.24%
ROE	-21.63%
Debt / Equity	50.11%
Net Debt / EBIDTA	-166.52%
Price To Book	0.52
Price Earnings Ratio	-2.16
Price To FCF	-1.52
Price To sales	0.28
EV / EBITDA	-3.56

2. Algoma Steel Group Q4 and Full Year 2024 Earnings Analysis

Algoma Steel Group delivered a mixed performance in Q4 2024, marked by operational progress but weighed down by challenging market conditions. The company reported an adjusted EBITDA loss of $60.3 million for the quarter, driven by lower realized prices, higher costs, and weaker demand. Full-year adjusted EBITDA stood at $22.3 million, reflecting the broader headwinds faced by the steel industry. While the company is making strides in production ramp-up and operational efficiency, the global steel market remains a significant hurdle, with tariffs and trade uncertainties impacting pricing and margins.

Publication Date: Mar -14

                                    📋 Highlights
                                    EAF Project Progress:
                                                The electric arc furnace (EAF) project is nearing completion, with cold commissioning underway and first steel expected in April 2025. This project is crucial for reducing costs and improving efficiency.
Financial Performance:
                                                The company reported a Q4 2024 adjusted EBITDA loss of $60.3 million, driven by lower realized prices, higher costs, and weaker demand. The full year 2024 adjusted EBITDA was $22.3 million, reflecting ongoing market challenges.
Impact of Tariffs:
                                                Tariffs and trade uncertainties have impacted pricing and margins. The company is adjusting its product mix to focus on higher-margin plate products, which could help mitigate some of these challenges.
Working Capital and Insurance:
                                                The company is targeting a $100 million working capital release by March 2025 and expects a $100 million insurance payout in 2025. This could provide significant liquidity support for the EAF project and other operations.
Shipments and Outlook:
                                                The Q1 2025 outlook anticipates lower shipments and adjusted EBITDA due to market weakness, though recent price improvements may benefit future quarters. The company is also targeting increased plate production and shipments in 2025.

                                

Financial Performance and Operational Updates

The company is also focusing on optimizing its product mix, with a strategic shift toward higher-margin plate products. Rajat Marwah, the Chief Executive Officer, noted that the company’s breakeven price of $950 per ton includes a 25% tariff, with costs for hot-rolled coil in the U.S. at $650 per ton. This pricing strategy underscores the company’s efforts to navigate the challenging trade environment while maintaining profitability.

Valuation and Outlook

Rajat Marwah emphasized the company’s commitment to cost reductions and strategic adjustments, particularly in light of tariffs and trade uncertainties. With the EAF project on track and discussions with the Canadian government regarding potential industry support, Algoma Steel is navigating a complex landscape with a focus on long-term resilience. While near-term challenges persist, the company’s strategic initiatives position it well to capitalize on improving market conditions once the EAF project is fully operational.

3. NewsRoom

Terence Corcoran: Forget Algoma. Here’s the real economic story

Dec -05

Source:

Market Chatter: Algoma Steel Group Plans 1,000 Layoffs Amid U.S. Tariff Pressure

Dec -01

Source:

Algoma Steel stock plunges after report of 40% layoff

Dec -01

Source:

Canada to Add New Tariffs to US Steel, Curb Foreign Imports

Nov -26

Source:

Algoma Steel Completes $500 Million Government Financing Transaction

Nov -17

Source:

Algoma Steel Group Maintained at Buy at Stifel Canada Following Q3 Results; Price Target Kept at C$11.50

Oct -31

Source:

Algoma Steel Group (NasdaqGM:ASTL) Losses Accelerate 58.9% Annually Despite 19.8% Revenue Growth

Oct -31

Source:

Algoma Steel Group Maintained at Buy at Stifel Canada Following Q3 Results; Price Target Kept at C$11.50

Oct -30

Source:

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.40%)

6. Segments

Sheet & Strip

Expected Growth: 3.5%

Algoma Steel Group Inc.'s Sheet & Strip segment growth of 3.5% is driven by increasing demand from the automotive and construction industries, coupled with the company's focus on product diversification and cost reduction initiatives. Additionally, investments in modernization and efficiency improvements are expected to enhance production capacity and reduce costs, further supporting growth.

Plate

Expected Growth: 3.2%

Algoma Steel Group Inc.'s 3.2% growth is driven by increasing demand for steel plates in the automotive and construction industries, coupled with the company's strategic investments in modernizing its production facilities and reducing costs. Additionally, the company's focus on producing high-strength, lightweight steel plates for electric vehicles and renewable energy infrastructure is contributing to its growth momentum.

Freight

Expected Growth: 2.8%

Algoma Steel Group Inc.'s freight growth of 2.8% is driven by increasing demand for steel in the automotive and construction industries, coupled with improved operational efficiency and investments in logistics infrastructure. Additionally, the company's strategic location in Sault Ste. Marie, Ontario, provides access to the Great Lakes-St. Lawrence Seaway, facilitating cost-effective transportation of raw materials and finished goods.

Non-steel

Expected Growth: 2.5%

Algoma Steel Group Inc.'s non-steel segment growth of 2.5% is driven by increasing demand for automotive parts, infrastructure development, and rising sales of precision tubes and pipes. Additionally, the company's focus on product diversification, operational efficiency, and strategic partnerships contribute to this growth.

Slab

Expected Growth: 3.8%

Algoma Steel Group Inc.'s slab segment growth of 3.8% is driven by increasing demand from the automotive and construction industries, coupled with the company's strategic investments in modernizing its production facilities and improving operational efficiency. Additionally, the company's focus on producing high-strength, low-alloy steel products is contributing to its growth in the slab market.

7. Detailed Products

Coil Products

Algoma Steel Group Inc. offers a range of coil products, including hot-rolled, cold-rolled, and coated coils, used in various industries such as automotive, construction, and manufacturing.

Plate Products

The company produces a variety of plate products, including carbon steel plates, alloy steel plates, and stainless steel plates, used in heavy industry, construction, and energy applications.

Sheet Products

Algoma Steel Group Inc. offers a range of sheet products, including hot-rolled, cold-rolled, and coated sheets, used in various industries such as automotive, construction, and manufacturing.

Tubular Products

The company produces a range of tubular products, including seamless and welded tubes, used in various industries such as oil and gas, construction, and manufacturing.

Rail Products

Algoma Steel Group Inc. produces a range of rail products, including rail, crane rail, and track accessories, used in the railroad industry.

8. Algoma Steel Group Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Algoma Steel Group Inc. is medium due to the availability of alternative materials and products that can replace steel in various applications.

Bargaining Power Of Customers

The bargaining power of customers is high due to the concentration of buyers in the industry, giving them significant negotiating power over prices and terms.

Bargaining Power Of Suppliers

The bargaining power of suppliers is low due to the availability of multiple suppliers and the lack of concentration in the supply chain.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry, including significant capital requirements and regulatory hurdles.

Intensity Of Rivalry

The intensity of rivalry is high due to the competitive nature of the steel industry, with multiple players competing for market share.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	7.72%
Debt Cost	11.64%
Equity Weight	92.28%
Equity Cost	11.64%
WACC	11.64%
Leverage	8.36%

11. Quality Control: Algoma Steel Group Inc. passed 6 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Inefficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Friedman Industries

A-Score: 5.4/10

Value: 7.0

Growth: 6.3

Quality: 5.1

Yield: 2.0

Momentum: 8.5

Volatility: 3.7

1-Year Total Return ->

Universal Stainless & Alloy Products

A-Score: 4.5/10

Value: 4.9

Growth: 4.8

Quality: 5.5

Yield: 0.0

Momentum: 7.0

Volatility: 4.7

1-Year Total Return ->

Olympic Steel

A-Score: 4.5/10

Value: 7.6

Growth: 5.0

Quality: 4.7

Yield: 3.0

Momentum: 2.5

Volatility: 4.0

1-Year Total Return ->

Stelco Holdings

A-Score: 4.5/10

Value: 3.8

Growth: 6.1

Quality: 5.8

Yield: 5.0

Momentum: 5.0

Volatility: 1.0

1-Year Total Return ->

Metallus

A-Score: 4.4/10

Value: 7.2

Growth: 2.3

Quality: 5.2

Yield: 0.0

Momentum: 6.5

Volatility: 5.0

1-Year Total Return ->

Algoma Steel

A-Score: 3.6/10

Value: 9.6

Growth: 2.2

Quality: 2.9

Yield: 4.0

Momentum: 0.5

Volatility: 2.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

18.45%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

11.64%

Algoma Steel Group Inc. - CA0156581070

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on ASTL

1.c. Company Highlights

Higher Growth

Cheaper

Average Yield

Earnings Beats

Medium Volatility

Stable Momentum

Earnings Miss

Average Quality

Strong Momentum

Revenues Beats

Lower Quality

Revenues Miss

Weak Momentum

Lower Growth

2. Algoma Steel Group Q4 and Full Year 2024 Earnings Analysis

Financial Performance and Operational Updates

Valuation and Outlook

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.40%)

6. Segments

Sheet & Strip

Expected Growth: 3.5%

Plate

Expected Growth: 3.2%

Freight

Expected Growth: 2.8%

Non-steel

Expected Growth: 2.5%

Slab

Expected Growth: 3.8%

7. Detailed Products

Coil Products

Plate Products

Sheet Products

Tubular Products

Rail Products

8. Algoma Steel Group Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Algoma Steel Group Inc. passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

6.14$

Current Price

6.14$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA