Tubos Reunidos to Resume Dividend This Year as Orders Surge

Tubos Reunidos SA (TRG), a Spanish maker of seamless steel pipes that was founded in 1892, will resume dividend payments this year as it expects to return to profit thanks to increasing orders and higher prices.

Its two manufacturing plants are at full capacity after receiving orders for 50,000 tons in the year’s first two months, double the amount in the same period of 2010, Chairman Pedro Abasolo said in a phone interview. Demand from the U.S., China, South Korea, India, Germany and Italy drove the increase, he said.

The worst of the crisis is over “without a doubt,” he said. “The current half will clearly be better than a year ago.”

Tubos Reunidos, whose more than 300 customers in 62 countries include Exxon Mobil Corp. (XOM), the world’s largest oil company, and BASF SE (BAS), the biggest chemical producer, stands to benefit as oil prices surge. The trend is boosting demand for pipes and may lead to higher margins, Abasolo said.

The company, based in the Basque town of Amurrio, may post net income of 31.7 million euros ($43.8 million) this year, according to the average estimates from two analysts in a Bloomberg survey. That compares with the 14.2 million-euro loss last year, when it set aside a provision of 25.8 million euros in connection with the planned sale of its Spanish distribution business.

Dividend Estimates

Tubos Reunidos is likely to pay a dividend of 5.8 cents a share this year, according to the average of two analyst estimates. It had a payout ratio of 25 percent to 30 percent of profit before it halted dividends in 2009.

The shares dropped 1.5 percent to close at 1.97 euros today in Madrid, as Spain’s benchmark IBEX 35 Index declined 1.2 percent. That trimmed their gain this year to 7.7 percent and valuing the company at 344.1 million euros.

The surge in orders is accompanied by “a clear improvement in prices,” boosted by the evolution of scrap-metal prices, said Abasolo, chairman since 1991.

“Pricing visibility for the first semester is satisfactory,” he said in the March 8 interview, adding the current level of prices “obviously” hasn’t matched 2008 yet.

Increasing Focus

The company is increasing its focus on seamless steel tubes, which deliver higher margins, after it decided to dispose of the domestic distribution unit, which sells products including industrial valves, heating units and air-conditioning units. Seamless steel tubes accounted for 74 percent of revenue in 2009, while distribution provided 16 percent. Another division produces automotive components.

“I sleep well, and sleep even better knowing that we are going to focus on the pipe business,” the 66-year-old executive said.

“The payment of a dividend is more a signal they’ll come back to profit than something significant,” Manuel Dias Coelho, an analyst at BPI-SGPS SA in Porto, Portugal, said by phone today. “The company comes from two tough years and seems to be taking the right steps. However, there are still risks derived from an increase in raw materials prices, as Vallourec and Tenaris said, which may have a negative impact in margins.”

Vallourec SA (VK), based in Boulogne Billancourt, France, and Luxembourg-based Tenaris SA (TEN) compete with Tubos Reunidos in selling steel pipes to the energy industry and other businesses.

Tubos Reunidos will use the 72 million euros in cash it had at the end of last year to continue investing in its factories and to fund the increasing activities derived from more orders, Abasolo said.

‘Key Markets’

The U.S. and India “are key markets” for the company where it aims to boost its presence this year, while studying other countries such as Brazil. Europe is improving, he added.

The company also won orders from countries in the Middle East, including Libya, Algeria, Saudi Arabia, Bahrain and other oil-producing countries in the region. “We’re paying close attention to what’s going on there in order to not to be affected by the current situation,” he said.

The company foresees “interesting growth rates” in the oil and petrochemical industries, Abasolo said. Demand for seamless steel pipes may increase 3 percent annually during the short-and medium term, the company said. The industry produces about 37 million tons a year and could grow to 60 million tons in the medium term. Tubos Reunidos produces about 300,000 tons a year.

Clients also include oil companies Repsol YPF SA (REP), PetroChina Co., Total SA (FP) and Saudi Aramco, as well as engineering companies Tecnicas Reunidas SA (TRE) and Bharat Heavy Electricals Ltd. (BHEL), which was “the most important client in 2010” after winning a 50 million-euro contract to provide seamless steel pipes in India.

The company expects the improvement in orders to continue for the whole year, boosting sales, net income and earnings before interest, taxes, depreciation and amortization, it said in a Feb. 28 presentation on its website.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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