Metal stocks have de-rated over the last few months on risk-off trade due to uncertainties of a trade war and concerns about slowing demand in China. The earnings growth for metal companies has started moderating.
“The aggregate EBITDA (earnings before interest, tax, depreciation and amortization) for the metal universe is expected to increase by around 17 per cent year on-year (YoY) (down 4 per cent QoQ), the slowest in 11 quarters”, Motilal Oswal Securities said in a December quarter result preview.
The aggregate profit after tax is expected to decline by 1 per cent YoY (- 9 per cent QoQ), turning negative after seven quarters of increase. Falling steel and metal prices amid US-China trade war concerns, rising global interest rates and slowing signs in China are driving weakness, it added.
“Domestic steel prices have weakened impacted by the lower international prices and global trade war woes. Valuation multiples for global metal companies have contracted reflecting the subdued economic outlook and we factor in the lower target EV/EBITDA multiples for ferrous stocks under our coverage,” analysts at Antique Stock Broking said in sector update.