$TS Quick Pitch

Tenaris S.A. is a leading European manufacturer of pipes and related services for the world's energy industry and certain other industrial applications.

TS 0.00%↑ #QuickPitch mcap= $21.49B, price $37.42 / share

TS 0.00%↑ #Pitch:

• Tenaris is a leading global manufacturer of seamless steel pipes for the oil and gas industry, playing a crucial role in the energy supply chain. Their high-quality products help companies boost production efficiency, making their strong market position impressive in such a specialized and regulated field.

• Tenaris operates across North and South America, Europe, Asia, and the Middle East, benefiting from diverse revenue streams that reduce reliance on any single region. While North American sales have declined, strong demand in Europe and the Middle East helps maintain stability in volatile markets, with its geographical presence providing a natural hedge against regional economic risks.

• Tenaris’s strong cash flows allow it to maintain minimal debt, making it financially resilient. In the first nine months of 2024, it generated $2.4 billion in cash from operations, supporting its ability to cover dividends and reinvest in growth without relying on external financing. This low leverage reduces the risk of financial distress.

• The company is responding to the global shift toward cleaner energy by investing in sustainable technologies and services. Tenaris is enhancing its environmentally friendly coating technologies and supply capabilities for renewable projects. This approach aligns with regulatory trends and attracts clients focused on energy transition, ensuring the company's long-term relevance.

• Tenaris benefits from a strong revenue base, partly due to government contracts that provide stable cash flows despite market fluctuations. In the recent financial period, about 29% of its revenue came from government-related projects, offering consistent performance across economic cycles.

• Although Tenaris has faced some revenue declines recently, the company is still doing a great job at maintaining high operational efficiency and good gross profit margins. By focusing on smart cost management, strategic pricing, and streamlined operations, Tenaris has managed to stay profitable even in tough market conditions.

• In 2024, Tenaris approved a dividend of $0.60 per share and engaged in share buybacks, reflecting management’s confidence in the business and their commitment to enhancing shareholder value.

• As a supplier to the oil and gas industry, Tenaris faces cyclical demand. Oil prices and exploration budgets vary significantly due to global economic and geopolitical factors, which impact Tenaris’s sales.

• Tenaris is involved in litigation regarding its investment in the Brazilian steel company Usiminas. In Q3 2024, the company set aside provisions for potential losses from this dispute. Legal challenges pose risks by potentially leading to unexpected costs and distracting management from core operations.

• Approximately 20% of Tenaris's credit exposure is tied to Pemex, Mexico's state-owned oil company. While Tenaris has a long-standing relationship with Pemex, delayed payments pose a credit risk, making it essential to monitor this situation closely.

• The oil and gas industry is adjusting to stricter environmental regulations around the world. Tenaris is making efforts to keep up with these changes, but we should keep in mind that these tighter rules might lead to higher compliance costs. This could impact the demand for their products, especially if energy companies start reducing their fossil fuel activities. So, it’s good to stay aware of these regulatory developments, particularly as global policies on climate change evolve!

TS 0.00%↑ valuation:

• Tenaris is a financially healthy company with low debt and solid cash reserves, allowing flexibility for growth or shareholder rewards. I appreciate this conservative approach, as it helps them handle economic challenges without cash flow issues.

• Tenaris has some great investments in non-core assets, like its partnership with the steel producer Ternium. This variety in their asset base not only brings in extra income but also offers the chance for growth in value. These investments add to the overall worth of Tenaris and help provide a safety net if the industry faces any challenges.

• ​With an EBITDA margin of approximately 19% during the first nine months of 2024, Tenaris demonstrates a disciplined approach to managing costs in relation to its revenues.

  

• Tenaris primarily generates revenue from selling steel pipes to the oil and gas sector, particularly in its Tubes segment. For the first nine months of 2024, this segment produced $9.21 billion out of total revenues of $9.68 billion, underscoring Tenaris's leadership in seamless and welded pipe products essential for energy exploration. Key expenses include raw materials (mainly steel), energy, labor, and other manufacturing inputs. In this period, the cost of sales reached $6.21 billion, accounting for over 64% of its revenue.

• Tenaris has returned about $459 million to shareholders through dividends and spent around $985 million on a share buyback program. With a dividend yield of approximately 4.19%, it's an attractive option, especially given its low debt and strong cash reserves.

• Tenaris is an appealing option with a price-to-earnings ratio below 8, making it a standout among peers. However, when we take into account the FCF, it becomes less attractive.

Expected Gain: Honestly, I think the company is either overvalued or, more accurately, fairly priced right now. Considering potential future FCFs, I wouldn’t be surprised to see a 30% drop in the stock price. I’ll be sure to keep it on my watchlist!