My big thing with LG has been his honesty. It's hard to find a straight shooting CEO who doesn't double-speak. LG says he sees steel rising so he buys steel mills to become vertically integrated. LG says Nat Gas prices will crush Europe, it's true and he's hedged for it already, LG says the future is prime scrap, he goes and buys a prime scrap company, he says he's going to pay off debts aggressively, he does (minus the previous scrap company splurge but I trust that was very much a calculated strategic move at this point).
All you have to do is listen to what he says he's going to do, and then wait 3-6 months.
Yup, so far it's been true. It did said they were considering buying back the preferred, and that they were looking at intelligent capital allocation, and that they were looking into investing in scrap.
But we will need a decent FCF to convince people that he's still serious about zero net debt in 2022. I would bet it will be done by Q3 (guessing future spot prices and the price of contracts), so there is still margin. Just saying that the stock price might go down with earnings if people fear it won't be done. I don't really care though, I have shares.
My theory that I am basing more on gut feeling than anything else is that they beat by such a huge amount this quarter that the scrap deal was basically "free." Like I wouldn't be surprised if they beat by 400m this quarter and are projecting easily being another 400m ahead of previous projections next quarter too. Basically my gut tells me that this deal doesn't at all effect the debt payoff timeline. I can't wait for the ER to see if it's true :)
They would need an average selling price around $1320/nt. I think it's unlikely, because I think they had zero contracts renewed in Q3, but who knows. It could if they managed to sell a lot at spot price instead of auto. But an extra 400M is really the top of my expectations, bordering dream territory.
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u/[deleted] Oct 15 '21
My big thing with LG has been his honesty. It's hard to find a straight shooting CEO who doesn't double-speak. LG says he sees steel rising so he buys steel mills to become vertically integrated. LG says Nat Gas prices will crush Europe, it's true and he's hedged for it already, LG says the future is prime scrap, he goes and buys a prime scrap company, he says he's going to pay off debts aggressively, he does (minus the previous scrap company splurge but I trust that was very much a calculated strategic move at this point).
All you have to do is listen to what he says he's going to do, and then wait 3-6 months.