212 The Business of Value Investingreduced capacity in response. As a result Ternium had no free cash
fl ow generation in 2008, but that was a result of onetime working
capital changes and some disruptions in Venezuela. Table 10.4 shows
a reworked discounted cash fl ow analysis that incorporates estimates
and assumptions as of early 2009, including the near standstill of the
global economy. The major changes include:- Free cash flow for 2009 of $ 300 million.
- Free cash beginning to grow in 2010 to 60 percent of prior
peak cycle figures. - As the cycle bottoms out and the global economy picks up,
steel prices rebound and free cash flows grow 20 percent for
the next two years as Ternium ’ s Venezuela volume is picked
up by expansion in Mexico and other Latin American areas.
Table 10.4 Discounted Cash Flow of Ternium Steel:
Recessionary Assumptions
Year Free Cash Flow PV of FCF at 10%
2009 $300 million $267 million
2010 $600 million $478 million
2011 $720 million $512 million
2012 $864 billion $549 million
Sum of PV of FCF $1.8 billion
Terminal value $8.6 billion $5.5 billion
Intrinsic value of company $7.3 billion
Shares outstanding 200 million
Intrinsic value per share $36.50
Shares outstanding 10% increase 220 million
Intrinsic value per share $33.18
Current share price ~$16
Margin of safety >100%
Current book value $22CH010.indd 212CH010.indd 212 9/2/09 11:50:56 AM9/2/09 11:50:56 AM