Hi there,
Russel Metals has rebounded quite nicely over the past few months. As one of the largest metal distributors in the North America, it had a rough go in recent years do to the uncertainty around trade (NAFTA, tarriffs, etc). By all accounts, the new U.S. administration is likely to be friendly to work with, and as such some of the headwinds and uncertain faced over the past handful year may start to dissipate.
Secondly, after a few years of low demand for steel, it appears that demand is starting to pick up. As per revised numbers released in October, steel demand in North America was expected to drop by 15.3% in 2020, down from 20.0% in the June report. Looking forward, demand is expected to rise by 6.7% in 2021, as compared to 6.2% previously.
Unfortunately, Russel's revenues have dropped by more than the actual demand. THrough the first nine months of the year, revenue has dropped by 29%. Although it is likely to see a much better Q4, there is no doubt that the pandemic is having a pretty big impact on operations. Cash flow per share also dropped dramatically, and the dividend accounts for 102% of cash flows. Over the short term it can manage, but if these results don't improve soon the dividend may be in jeopardy. Of note, despite an expected jump in steel demand in 2021, it will still fall short well of 2019 levels. Furthermore, the expectation is for RUS to generate $3.1B in revenue in 2021, well below the $3.6B and $4.1B it generated in 2019 and 2018 respectively.
Overall, I do like the company and it is well run. However, it has been impacted by some pretty significant macro-factors over the past years that have been beyond its control. It is why, the company is still trading at a discount to where it was three years ago. It may still yet take some time to recover, but the macro environment may finally be on the verge of recovering. I'd be cautiously optimistic here.
Mat