Trading Idea: Eramet (ERA-FR)

We had an Enter Long Strategic signal on January 6, 2021, triggered by our system on Eramet, ERA-FR, the French Mining company.

Our system also triggered an Enter Long Tactical signal on October 8, 2021 that imply a likely bullish acceleration. Eramet has a rather weak track record, with a Behavioral score of 1/10, therefore the bullish signal is to be considered as mainly Tactical.

Eramet is a € 2.2 Bn market cap and global mining and metals group, a key player in the extraction and processing of metals (manganese, nickel, mineralized sands) and in the development and transformation of high value-added alloys (high-speed steels, high-performance steels, superalloys, aluminium and titanium alloys).

The Group is supporting the energy transition by developing activities with high growth potential, such as lithium mining and refining, and recycling. Eramet is positioned as a key partner for its customers in the steel, stainless steel, aerospace, pigment, energy and new-generation battery industries.

Sales by product family break down into manganese (48%), nickel (25%), high-performance alloys (19%) and mineralized sands (8%).

After several difficult years including the pandemic and prior deep restructuration, the company is now expected to report a strong EBITDA margin of 13.4% in 2021, coupled with a € 4.25 Bn in revenues. Thanks to a strong demand recovery and limited minerals supply leading Nickel and Manganeses prices higher, Eramet is expected to reach again its 2018 record peak level of EBITDA in 2023 or 2024. However the balance sheet is weaker than it was before the heath crisis with a net debt of €1.3 Bn at the end of 2020. The strong cash flow generation should allow the company to deleverage at quick pace in the next two years.

Short term catalyst : rising nickel and manganese prices, deleveraging.

This signal looks consistent with the European Basic Resources sector in Major Bullish trend, while there is still only 72% of Basic Resources companies in Tactical signal and only 48 % in Strategic signal.