Salzgitter stock jumps around 25% in two days, but UBS sees gains as excessive

Investing.com -- Shares of Salzgitter AG (ETR:SZGG) jumped nearly 25% over two sessions following news that its SECURE500 protection steel had received military certification. 

UBS in a note dated Wednesday, however, said the rally appears excessive relative to the potential earnings impact.

Salzgitter on July 8 said that it and subsidiary Ilsenburger received approval from Germany’s Military Technical Centre for its SECURE500 steel grade, intended for use in military vehicles and protection systems. 

The announcement coincided with media reports that Germany may spend about €25 billion on around 2,500 GTK Boxer armored fighting vehicles and about 1,000 Leopard 2 tanks as part of NATO initiatives. 

Separately, Germany is preparing to purchase about 1,000 Patria Armoured Modular Vehicles for up to €2 billion.

UBS acknowledged the certification as positive but estimated that the total steel demand for all vehicles would be 110,000–130,000 metric tons over the life of the contracts, a portion of which would be high-margin quenched and tempered (Q&T) plate. 

UBS estimates additional EBITDA potential of €110 million to €200 million, or 8–15% of Salzgitter’s pre-rally market cap. 

However, production would likely be shared with other Q&T producers such as SSAB and Nucor (NYSE:NUE).

Despite high margins and thematic relevance, UBS believes the stock’s 20% one-day gain likely reflects a short squeeze in an illiquid name. The stock closed at €26.90 on July 8, well above UBS’s €21.70 target price. 

UBS maintained its “neutral” rating and projected a negative19.3% return over 12 months, including a 0% dividend yield.

The report flagged Salzgitter’s ongoing challenges: falling EU hot-rolled coil spreads, weak automotive demand, and high energy costs. 

EBIT margins are forecast at 1.2% in 2025, rising to 5.3% by 2029. Net earnings are expected to remain negative in 2025, with a recovery to €167 million in 2026. 

Net debt is forecast to increase from €753 million in 2024 to €1.33 billion in 2025, pushing net debt to EBITDA to 3x.