The Business of Value Investing.pdf

206 The Business of Value Investing

assets prices, liquidation was the only alternative. These events exac-

erbated the slowdown in the economy and as a consequence, com-

modity prices, including steel, took a free fall. Ternium ’ s share price

was not spared. This case study took place when the shares were trad-

ing in the $ 25 to $ 30 range. The shares subsequently climbed to $ 45

over the next year and continued to outperform the broad market

until the markets completely froze and commodity prices tanked. As

of early 2009, the shares were trading for $ 10.

While certainly not impossible, it ’ s doubtful that the shares

will reach or exceed the price reached in the second half of 2008

anytime soon. Although Ternium still remains one of the world ’ s

most profi table steel companies, no business can escape a decline

in market value when the price of your principal product falls pre-

cipitously. As with any sound investment analysis, the primary focus

should fi rst be the process of valuation. A sound process ultimately

will lead to a desirable outcome. Ternium certainly appears to be a

company that will survive the severe economic recession that began

in late 2007/early 2008. It has a quality management team, lean

cost structure, and a product that will once again experience more

and more demand. This case study should fi rst and foremost serve

as one potential way to develop a sound investment process.

Company Background

Ternium Steel is one of the leading steel companies in Latin

America with principal operations in Mexico, Argentina, and

Venezuela. The company was founded in 1961 and is based in

Luxembourg. Upon examination of the company ’ s fi nancial state-

ments in 2007, it didn ’ t take long to realize that this was one of the

most profi table steel companies in the world. The numbers literally

jumped out of the page. Ternium is run by the Rocca family, which

has a decades - long stellar reputation in running steel mills. Their

impressive management of Tenaris, another Latin American – based

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