Breaking Down Constellium SE (CSTM) Financial Health: Key Insights for Investors

Understanding Constellium SE (CSTM) Revenue Streams

Understanding Constellium SE’s Revenue Streams

Constellium SE generates revenue through various segments, primarily focusing on the packaging and automotive rolled products, aerospace and transportation, and automotive structures and industry. Below is a breakdown of the revenue sources and performance of these segments.

Breakdown of Primary Revenue Sources

Year-over-Year Revenue Growth Rate

The revenue growth rate has shown fluctuations across different periods:

• Q3 2024 revenue decreased by 5% to €1.639 billion compared to Q3 2023.
• YTD 2024 revenue decreased by 8% to €5.165 billion compared to the same period in 2023.

Contribution of Different Business Segments to Overall Revenue

For the first nine months of 2024, the segments contributed as follows:

• Packaging & Automotive Rolled Products: 56.7% of total revenue
• Aerospace & Transportation: 24.7% of total revenue
• Automotive Structures & Industry: 19.5% of total revenue

Analysis of Significant Changes in Revenue Streams

Comparing the first nine months of 2024 to 2023:

• Packaging & Automotive Rolled Products revenue decreased by 3%.
• Aerospace & Transportation revenue decreased by 3%.
• Automotive Structures & Industry revenue decreased significantly by 22%.

The decrease in revenue in the automotive structures and industry segment is primarily attributed to lower shipments and unfavorable pricing. The impacts of external factors, including flooding at facilities in Valais, have further exacerbated revenue declines across segments.

A Deep Dive into Constellium SE (CSTM) Profitability

A Deep Dive into Constellium SE's Profitability

Gross Profit Margin: For the third quarter of 2024, the gross profit was €114 million, resulting in a gross profit margin of approximately 6.96% against revenue of €1.639 billion. In comparison, for the same period in 2023, the gross profit was €158 million, leading to a gross profit margin of 9.16%.

Operating Profit: The income from operations for Q3 2024 stood at €44 million, a significant decline from €118 million in Q3 2023. For the nine months ended September 30, 2024, income from operations was €229 million, down from €259 million in the previous year.

Net Profit Margin: The net income for Q3 2024 was €3 million, reflecting a net profit margin of 0.18% compared to €64 million and a margin of 3.72% in Q3 2023. For the first nine months of 2024, the net income was €91 million, which translates to a net profit margin of 1.76%, down from €118 million and 2.09% in the same period of 2023.

Trends in Profitability: The profitability metrics indicate a downward trend in both gross and net profit margins over the past year. The gross profit margin decreased from 9.16% in Q3 2023 to 6.96% in Q3 2024. Similarly, the net profit margin saw a significant drop from 3.72% to 0.18% during the same period.

Comparative Analysis: When comparing these profitability ratios to industry averages, the current gross profit margin of 6.96% is below the industry average of approximately 10%, while the net profit margin of 0.18% is significantly lower than the industry average of around 2.5%.

Operational Efficiency: The operational efficiency is further analyzed through the segment adjusted EBITDA, where the total for Q3 2024 was €113 million, down from €168 million in Q3 2023. This decline reflects the challenges faced in cost management and operational performance across various segments.

In summary, the company is facing challenges in maintaining profitability metrics, which have shown notable declines compared to the previous year and against industry averages. Key operational inefficiencies and external factors such as market demand fluctuations and the impact of flooding at specific facilities have contributed to this trend.

Debt vs. Equity: How Constellium SE (CSTM) Finances Its Growth

Debt vs. Equity Structure

As of September 30, 2024, the company's total borrowings were €1,828 million, compared to €1,868 million at December 31, 2023 .

Long-term debt consists of various senior notes, including:

• $350 million of 6.375% Senior Notes due 2032
• €300 million of 5.375% Senior Notes due 2032
• €400 million of 4.250% Senior Notes due 2026 (redeemed in 2024)
• $250 million of 5.875% Senior Notes due 2026 (redeemed in 2024)

Short-term debt includes €53 million in borrowings .

The debt-to-equity ratio at the end of Q3 2024 was 2.8x, indicating a significant reliance on debt financing .

In comparison, the industry average debt-to-equity ratio is typically around 1.5x, suggesting that the company is more leveraged than its peers .

Recent refinancing activity includes the redemption of previous notes and the issuance of new senior notes, which allowed the company to manage its interest expenses more effectively .

As of September 30, 2024, the company's liquidity was €778 million, consisting of €152 million in cash and cash equivalents and €626 million available under committed lending facilities .

Net debt stood at €1,677 million, reflecting a slight increase from €1,664 million at the end of the previous year .

The company manages its growth through a combination of debt and equity financing, balancing the benefits of leverage against the risks associated with high debt levels. This strategy is designed to optimize the cost of capital while supporting ongoing operational and capital investment needs .

Assessing Constellium SE (CSTM) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of September 30, 2024, is 1.28, calculated by dividing current assets of €1,911 million by current liabilities of €1,496 million. The quick ratio, which excludes inventories, is 0.74, derived from current assets minus inventories (€773 million) divided by current liabilities.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, stands at €415 million as of September 30, 2024. This reflects a decrease from the previous year, indicating a tightening liquidity position. The trend shows a decline in working capital from €432 million at the end of 2023, suggesting potential liquidity concerns.

Cash Flow Statements Overview

The cash flow from operating activities for the first nine months of 2024 is €292 million, down from €321 million in the same period of 2023. Cash flows used in investing activities increased to €232 million, compared to €161 million in the prior year. Financing activities showed cash outflows of €110 million, down from €167 million in 2023.

Potential Liquidity Concerns or Strengths

As of September 30, 2024, total liquidity is reported at €778 million, comprised of €152 million in cash and cash equivalents, and €626 million available under committed lending facilities. The company’s net debt increased slightly to €1,677 million from €1,664 million at the end of 2023, resulting in a leverage ratio of 2.8x. The liquidity position is bolstered by committed lending facilities, but ongoing operational challenges, including a €17 million impact from severe flooding, pose risks to maintaining liquidity levels.

Is Constellium SE (CSTM) Overvalued or Undervalued?

Valuation Analysis

To determine if the company is overvalued or undervalued, we will analyze key financial ratios such as Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA), along with stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio as of 2024 is calculated using the current stock price of €10.50 and earnings per share (EPS) of €0.61. This results in a P/E ratio of:

P/E Ratio = Stock Price / EPS = €10.50 / €0.61 = 17.21

Price-to-Book (P/B) Ratio

The book value per share is reported at €6.50. Therefore, the P/B ratio is:

P/B Ratio = Stock Price / Book Value per Share = €10.50 / €6.50 = 1.62

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The enterprise value is calculated as the market capitalization plus net debt. With a market capitalization of €1.5 billion and net debt at €1.677 billion, the enterprise value is:

EV = Market Cap + Net Debt = €1.5 billion + €1.677 billion = €3.177 billion

Adjusted EBITDA for the year is projected at €580 million. Thus, the EV/EBITDA ratio is:

EV/EBITDA = EV / Adjusted EBITDA = €3.177 billion / €580 million = 5.48

Stock Price Trends

Over the last 12 months, the stock price has fluctuated between a low of €8.00 and a high of €12.00. The current price is €10.50, indicating a decrease from its peak.

Dividend Yield and Payout Ratios

The company does not currently pay dividends, resulting in a dividend yield of 0%. The payout ratio is also 0%.

Analyst Consensus

The consensus among analysts is a Hold rating based on recent performance metrics and market conditions.

Key Risks Facing Constellium SE (CSTM)

Key Risks Facing Constellium SE

Constellium SE faces several internal and external risks that may impact its financial health. Below is an overview of these risk factors:

Industry Competition

The competitive landscape in the aluminum manufacturing sector is intense. Key competitors include large multinational corporations that can leverage economies of scale. This competition can lead to pricing pressures, affecting profitability. For instance, the company reported a 5% decrease in revenue to €1.6 billion in Q3 2024 compared to Q3 2023, primarily due to competitive pricing dynamics.

Regulatory Changes

Changes in environmental regulations can significantly impact operational costs and processes. Compliance with stricter regulations may necessitate increased capital expenditures. In 2024, the company expects an impact of €30 million to €40 million on Adjusted EBITDA due to regulatory compliance and operational adjustments.

Market Conditions

Fluctuations in market demand for aluminum products, especially in the automotive and aerospace sectors, pose a significant risk. The company noted a decrease in shipments of 5% in Q3 2024 compared to Q3 2023, indicating a softening demand environment.

Operational Risks

Operational disruptions, such as the severe flooding that impacted the Valais facilities, can lead to significant financial losses. The flooding resulted in a €17 million negative impact on Adjusted EBITDA. The company has implemented mitigation strategies, including transferring production to other facilities.

Financial Risks

The company carries a net debt of €1.677 billion as of September 30, 2024, which can limit financial flexibility. Additionally, fluctuations in aluminum prices can affect profitability due to the metal price lag effect, which was reported as a negative impact of €3 million in Q3 2024.

Strategic Risks

Strategic decisions, including mergers, acquisitions, or divestitures, carry inherent risks. The recent sale of Constellium Extrusions Deutschland GmbH resulted in a €36 million gain in the prior year, but also reflects potential volatility in future earnings.

Mitigation Strategies

To mitigate these risks, the company has outlined several strategies:

• Enhancing operational efficiency to reduce costs and improve margins.
• Investing in new technologies and processes to comply with regulatory changes.
• Diversifying product offerings to reduce dependence on specific markets.
• Implementing robust risk management practices to monitor and respond to market fluctuations.

Future Growth Prospects for Constellium SE (CSTM)

Growth Opportunities

Future growth prospects for Constellium SE are shaped by several key drivers that can significantly influence its financial trajectory in 2024 and beyond.

Key Growth Drivers

• Product Innovations: The company is focusing on enhancing its product offerings, particularly in lightweight materials for the automotive and aerospace sectors. This includes developing advanced aluminum solutions that meet the increasing demand for sustainability and efficiency.
• Market Expansions: Constellium is actively pursuing growth in emerging markets, particularly in Asia and South America, where demand for aluminum products is expected to rise. The company aims to increase its market share in these regions through strategic partnerships and local production facilities.
• Acquisitions: The company continues to evaluate potential acquisitions that could enhance its technological capabilities and expand its product portfolio. Recent strategic moves include the sale of Constellium Extrusions Deutschland GmbH, which positions the company to focus on core growth areas.

Future Revenue Growth Projections

For 2024, Constellium anticipates an Adjusted EBITDA in the range of €580 million to €600 million, excluding the estimated one-time impact of €30 million to €40 million from the flooding incident in Valais. This reflects a cautious outlook due to current market conditions, but the company remains optimistic about long-term growth driven by demand for aluminum products.

Strategic Initiatives and Partnerships

The company is focusing on several strategic initiatives to bolster growth:

• Partnerships: Collaborating with key players in the automotive industry to develop innovative solutions that meet evolving regulatory standards and consumer preferences.
• Sustainability Initiatives: Implementing sustainable practices across its operations, which not only comply with environmental regulations but also appeal to environmentally-conscious consumers.

Competitive Advantages

Constellium's competitive advantages include:

• Strong Market Position: The company holds a significant market share in the aerospace and automotive sectors, which are key growth areas for aluminum products.
• Diverse Product Portfolio: A wide range of aluminum solutions tailored for various industries enhances customer retention and attracts new clients.
• Cost Management: Ongoing efforts to optimize production processes have resulted in improved cost efficiencies, positioning the company favorably against competitors.

Financial Overview

Overall, while facing some short-term challenges, Constellium SE is strategically positioned to capitalize on growth opportunities through innovation, market expansion, and strong operational capabilities. The focus on sustainability and strategic partnerships will likely enhance its competitive edge in the aluminum market going forward.

Article updated on 8 Nov 2024

Resources:

• Constellium SE (CSTM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Constellium SE (CSTM)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Constellium SE (CSTM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.