SSAB Slumps as Nomura Cuts Rating on Valuation: Stockholm Mover

SSAB fell the most in more than two weeks in Stockholm trading after Nomura Holdings Inc. cut its recommendation on the Swedish steel manufacturer’s shares to reduce from neutral because of a “very expensive valuation.”

SSAB dropped as much as 2.9 percent to 46.01 kronor, its steepest intraday decline since Aug. 27 and lowest price since Aug. 30. The shares lost 2.8 percent to 46.05 kronor as of 11:25 a.m. Stockholm time, with trading volumes at 57 percent of the daily average in the past three months.

SSAB currently trades at 10.1 times estimated 2014 earnings before taxes, depreciation and amortization compared with an industry average multiple of 8, Nomura said. The Swedish company needs to generate Ebitda of 4.8 billion kronor ($734 million) next year “for its multiple to return to the 6.5 that it has averaged over the cycle,” the broker said. SSAB reported an Ebitda of 2.49 billion kronor in 2012.

“Not only does SSAB require one of the largest earnings recoveries in 2014 to sustain its current valuation, it will have a relatively limited impact from its cost-saving program -- completed in the first quarter 2013 -- and will no longer benefit from below-spot iron ore prices, as it has done in the first half 2013,” Nomura said in a note to clients today.

Nomura cut its share-price estimate for SSAB to 37 kronor from 42 kronor, reducing the average estimate of 21 analysts surveyed by Bloomberg to 40.01 kronor. Only two of the 26 analysts that cover the shares advise clients to buy the stock, while 14 have sell recommendations and 10 have hold ratings.

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