EFTA01385520.pdf

> Energy, Materials & Industrials Deutsche Bank ArcelorMittal — Bastian Synagowitz, BUY, close €28.7, €33 tgt, 15% upside ■ Despite having performed well recently, we believe the stock is still priced Expectations are sensible but the shares do not reflect the ongoing earnings for a "cautious" $7bn EBITDA scenario. This appears too bearish as spot recovery yet conditions remain strong and three structural changes have removed — AM - share price performance (EUR) (LHS) 120 14,000 part of the downside risk: — 1 yr rolling EBITDA consensus (USDm) (RHS) 100 2 yr rolling EBITDA consensus (USDm) (RHS) ■ Firstly, Europe is seeing the strongest consolidation dynamic since the 12,000 creation of ArcelorMittal itself. 80 10,000 ■ Second, trade policy continues to become stricter in MT's US and 60 European core markets. 8,000 40 ■ Third, China is aiming to cut capacity 10-20%. Our checks (and rising 6,000 margins in China) support the view this is for real. 20 ■ Although we model a steel price correction from spot (suggests $10bn 0 4,000 EBITDA), we believe the stock comes with three free options beyond our Dec/09 Dec/10 Dec/11 Dec/12 Dec/13 Dec/14 Dec/15 Dec/16 Dec/17 Source Datastream base case scenario (stronger developed market margins, Brazilian recovery, commodity price holding up better) which means it could almost double in a blue sky. Sales by end-market (2016) ■ MT should end 2017 with net debt of c.$10bn, vs Q4 run rate EBITDA of Other sales 8% $8bn. Its strong 2018 FCF yield of 8-11% suggest high potential for Mining. Chemical & Water 1% attractive cash returns mid-term: $2.9bn of FCF, and just $0.3bn of divis in our model. Other steel 11% ■ Valuation: MT trades at 5.0x 2018E EV/EBITDA, 14% discount to peers Distribution 26% Packaging 4% ■ Catalysts: trade policy, steel margins holding up better, further rebound in iron ore. Q4 results 9-Feb. Transformation 12% Related DB Research: Notes from the road: US NDR (Synagowitz) Construction 18% Another round of upgrades and still room to go - BUY, PT to USD38 (Synagowitz) Auto 20% Some: Deutsche Bank Deutsche Bank Research• Ettopean Equity Focus —Jammu 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086806 CONFIDENTIAL SDNY_GM_00232990 EFTA01385520