Ternium SA (TX) is Latin America's largest flat-rolled steel producer and the third-largest producer in the Western Hemisphere. Some 80% of its 13.8 million tons of steel sales are in Mexico, Brazil, and the US. The stock trades for a deep discount and could benefit from global nearshoring efforts, opines Tyler Crowe, author of Misfit Alpha.
I get it. An elevator pitch of “Check out this Argentinian-based steelmaker” will likely make some of you spit your coffee in disbelief. But bear with me because I think this is worth your time.
Ternium is a fully integrated steel company and Latin America’s largest producer of flat-rolled steel. If we include US foundries, Ternium ranks #3 in the Western Hemisphere behind Nucor (NUE) and Cleveland-Cliffs (CLF). Even though the company is based in Argentina (technically headquartered in Luxembourg), more than 50% of its sales are in Mexico, which is expected to grow substantially in the coming years.
The crown jewel in Ternium assets is its industrial center in Nuevo Leon, Mexico. The facility produces 4.4 million tons of hot-rolled products, 1.7 million tons of cold-rolled products, 860,000 tons of hot-dipped galvanized products, and 140,000 tons of pre-painted products. The company has also announced two separate expansion projects that will invest $3.2 billion in iron ore reduction, raw steelmaking, and expanding its cold-rolling and hot-dipped galvanizing capacity.
This significant expansion comes as Mexico is becoming one of the direct beneficiaries of the trend toward nearshoring supply chains and manufacturing capability, specifically in Nuevo Leon. The Mexican state has become a major automotive manufacturing hub for Mercedes Benz, Kia, Pratt & Whitney, Caterpillar, and John Deere. Tesla’s (TSLA) planned expansion in Mexico is expected to happen in Nuevo Leon, too. Ternium’s expansion is a big bet that industrial and automotive manufacturing will continue to thrive in Mexico’s manufacturing hub.
Ternium is making these investments from a position of financial strength. As of late 2023, the company’s debt-to-capital ratio was 12.6%, with a net cash position of $1.86 billion.
Steelmaking is a notoriously cyclical business and shouldn’t trade for high valuations. Also, Ternium’s ownership structure is a little odd. Roughly 75% of its outstanding shares are owned by the founding Rocca family via its ownership of Technit and Tenaris SA (TS).
Even by steelmaking and strange ownership standards, Ternium’s stock looks dirt cheap. The stock recently traded for 0.6 times tangible book value and its net cash position was $9.53 per share, about 25% of the stock price.
