Bekaert shares plunge as higher raw material costs bite

20 July 2018

Belgian steel wire maker Bekaert said on Friday that changes in trade policies and higher costs of key raw materials were set to dent this year’s profits, sending its shares down as much as 20 percent.

The shares are on track for their worst single day percentage fall since going public in 1989. They were trading at 22.02 euros at 0711 GMT.

Tit-for-tat U.S. and European Union tariffs on steel and aluminum products imposed in May are weighing on Bekaert’s margins as it depends on imports because the local steel mills cannot supply the specific wire rod grades needed to produce tire cord.

The company cited the impact of changes to trade policies in its statement but gave no details.

Bekaert, whose steel wire reinforces a third of the world’s tyres, said it expected underlying operating profit 20 percent below analyst estimates in the first half of 2018.

Analysts on average had expected underlying earnings before interest and taxes (EBIT) of 142 million euros ($165.67 million).

The company said it would not be able to achieve 2017’s profitability level this year — a down shift from its previous expectation of a flat 2018.

“It is clear the company is experiencing a vast number of headwinds which currently make it very difficult to gain visibility on future earnings potential,” ING analyst Stijn Demeester writes in a note.

KBC analyst mirrors ING’s view and downgrades the stock to “Hold” from “Accumulate” and slashes price target by 24 percent to 32 euros.

The company also cited weakness in Latin America, low demand for loose abrasive sawing wire and lean demand in oil and gas markets as other factors that are taking a toll on margins.

“The adverse margin effect from a number of factors that have weighed on our profitability since the second half of 2017 seem to have more impact and lasting longer than we projected,” said Bekaert, which is due to report first-half results on July 27.