Arrium turns earnings around

Like most of the iron ore names, Arrium (ARI) has been hit pretty hard over the past six months. Ore prices deteriorated significantly, which weighed heavily on earnings.

Iron ore Arrium

Now the miner has finally started showing positive signs. Results have swung back to profit, helped by additional capacity and the Whyalla Port expansion. Headline underlying net profit after tax came in at $296 million (+83%) – ahead of analysts’ estimates of $290 million.

However, sales fell just short of estimates coming in at $7.01 (+2.4%) billion as opposed to $7.16 billion expected. The dividend was also a cent lower than expectations at three cents per share, presumably due to lower iron ore export prices.

ARI continues to face margin pressure in steel earnings but overall cash generation has largely improved across the business. The company is likely to enjoy some short-term momentum as debt reduction and improved leverage are ARI’s key strategies going forward. Analysts at ANZ have suggested China Mills may be looking to restock over the next two weeks, giving a kicker to some of these iron ore names in the near term.

Downtrend broken

From a price action perspective, ARI has been in a downtrend ever since it topped out at $1.88 back in February. The spectacular fall took the stock all the way down to 73 cents, where it eventually managed to form a base.

After a couple of attempts to move higher, ARI finally broke through in a sweeping move to take it above the 80 cent mark today. The reaction to the results actually created a gap accompanied by a spike in volume.

With confidence returning to the stock, momentum could really carry it forward and spark further buying interest. With the RSI at 58, ARI has yet to hit overbought territory. The next key level stands at $1 – a 23.6% retracement from the February-to-July drop.

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