USD 16.

10/Share
8.9% DOWNSIDE S ELL

CFA Research Challenge

2020
Schnitzer Steel Inc.
(NASDQA: SCHN)

Hieu Nguyen - Paris Butler - Ken Teoh - Jose Zabala - Magali Centeno
Portland State University
Company Description Industry Analysis Competitive Position Primary Drivers Valuation
 USD 16.10/Share
PORTLAND STATE UNIVERSITY 8.9% DOWNSIDE S ELL

Three Key Reasons to SELL Schnitzer

60
USD 16.10/Share
SELL Poor Inefficient
40 8.9% DOWNSIDE Revenue Growth
Drivers Investment

20
Low Competitive
Position

0
2016 2017 2018 2019 2020

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
1 Company Description 8.9% DOWNSIDE S ELL

Revenue by Segments 2014-2019

100%
6% 6% 8% 8% 6% 6%
90%
80%
70%
60% 71% 72%
79% 70% 72% 74%
50%
40%
30%
20%
10% 23% 22% 20% 20% 22%
15%
0%
2014 2015 2016 2017 2018 2019

CSS AMR Auto Part

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
2 Industry Analysis 8.9% DOWNSIDE S ELL

Decrease in in Steel
Decrease
steel price
Price

Emerging
Scrap Metal
Markets Slow-
Industry
Down

Scrap metal
Chinese
Steel
industry
Overproduction

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
3 Competitive Position 8.9% DOWNSIDE S ELL
CSS Market Automotive-Parts Market

Low Competitive Position

AMR Market

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
3 Competitive Position 8.9% DOWNSIDE S ELL
CSS Market
Net Operating Margins (2016-2019) Finished Steel Market Share
15.00% 18.0%
15.6%
16.0%
12.00%
14.0%

9.00% 12.0%
10.3%
10.0%
6.00% 8.0%
6.2%
6.0% 5.1%
3.00%
4.0%

0.00% 2.0% 1.3%

2016 2017 2018 2019 0.0%

Nucor HBIS Shagang Bao Steel Schnitzer
Schnitzer Nucor

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
3 Competitive Position 8.9% DOWNSIDE S ELL
AMR Market

Scrap Metal Recycling Market Share

8% 7.3%
• Competitive pressures from emerging-market company 7%
6%
5%
4.1%
• Currency risks and emerging-market risks 4%
3%
2.2%
2%
1.2%
• High competition in purchasing manufacturing inputs 1%
0%
Sims (Market Commercial Schnitzer Metalico
Leader) Metals
Company

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
3 Competitive Position 8.9% DOWNSIDE S ELL
Automotive-Parts Market
16.0
14.0
Auto-Parts Market Share in US
12.0
40.00%
10.0
32.4%
% Change

8.0
6.0 30.00%

4.0
2.0 20.00% 17% 17.7%
16.5%
0.0 14%

-2.0
10.00%
-4.0
2012 2014 2016 2018 2020 2022 2024 2.00%

Auto Part Store 0.00%

Schnitzer Genuine O'Reilly Advance Other Auto
Demand from e-commerce and online auctions Parts Auto Part Minor Zone
Players

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
4 Primary Drivers 8.9% DOWNSIDE S ELL

Revenue
0.5 GDP and Schnitzer Revenue SSI Total Nonferrous Volumes by
Drivers 0.4 Destination
0.3 50% 46%

% changes
Demand & Supply 39% 38% 38%
Imbalance 0.2 40%
34%
37%

0.1 28%
30% 25%
Politics & 0
Geopolitics 20%
2015 2016 2017 2018 15%
-0.1
10%
-0.2
Coronavirus
-0.3 GDP Schnitzer Revenue 0%
Domestic China All Others
-0.4
2017 2018 2019

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
5 Valuation 8.9% DOWNSIDE S ELL

2019 2020 2021 2022 2023 2024

Operating
Income/profit $ 84,293 $ 70,659 $ 72,961 $ 73,616 $ 73,922 $ 74,347 • 5 Valuation Models: APV, Equity Cash Flow, Dividend
* (1-t) 76.8% 79.0% 79.0% 79.0% 79.0% 79.0%
= NOPAT $ 64,757 $ 55,821 $ 57,639 $ 58,156 $ 58,398 $ 58,734 Model, Corporation Value Model, and EV/Revenue Model
+ Dep. Expense +
Amort Exp. $ 53,336 $ 60,803 $ 63,235 $ 64,500 $ 65,145 $ 65,796 • Adjusted Present Value (Primary Valuation Model)
= Operating Cash
Flow (OCF) $ 118,093 $ 116,624 $ 120,875 $ 122,656 $ 123,543 $ 124,531
– ∆ Net Operating Slide 15 $ • Aggressive deleveraging
Working Capital 136 $ (4,903) $ (1,358) $ (1,352) $ 37 $ 302
– ∆ Gross Fixed • Choice of APV best reflects value in circumstance of
Assets $ 90,206 $ 124,699 $ 84,047 $ 75,322 $ 70,664 $ 71,371
= FCFF (free cash changing leverage
flow to the firm) $ 27,751 $ (3,172) $ 38,186 $ 48,686 $ 52,842 $ 52,858
– interest expense *
(1–t) $ (6,530) $ (4,673) $ (4,093) $ (3,262) $ (2,296) $ (1,197)
+ ∆ Debt $ (4,407) $ 29,499 $ (19,132) $ (27,445) $ (31,883) $ (36,310)
Dividend (not
preferred) $ 20,615 $ 20,645 $ 20,645 $ 20,645 $ 20,645 $ 20,645
= FCFE $ 16,813 $ 21,654 $ 14,961 $ 17,979 $ 18,662 $ 15,352
= FCFF (Free cash
flow to the firm) $ 27,751 $ (3,172) $ 38,186 $ 48,686 $ 52,842 $ 52,858
+ Tax Savings $ 1,885 $ 1,242 $ 1,088 $ 867 $ 610 $ 318
Unlevered Cash Flow $ 29,486 $ (1,930) $ 39,274 $ 49,553 $ 53,452 $ 53,176

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
5 Valuation 8.9% DOWNSIDE S ELL

$20.00
Cost of Equity 10.94% $18.00 $17.28 $17.67
$16.10
$16.00
Risk Free Rate 1.89% $14.00
$13.54

Beta 1.51 $12.00

$10.09
$10.00
Unleveraged Beta 1.16 $8.00
$6.00
Risk Premium 6%
$4.00
Ku CAPM 8.85% $2.00
$0.00
Cost of Debt 3.83% Share Price
APV Corporate Valuation Method
WACC 8.72% Equity Cash Flow Method EV/Rev Multiple
Dividend Discount Model

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD16.10/Share
USD 16.10/Share
5 Valuation 8.9%
8.9%DOWNSIDE
DOWNSIDE S ELL

Improved price and

Recessionary economic view
Volume assumptions
Severe foreign market
Continued shift in
ferrous volume decline
domestic sales

$10.05 $16.10 $17.48 $23.85

(- 41.16% downside) (- 8.90% downside) (39.64% upside)

Bear Market Target Current Bull Market

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
PORTLAND STATE UNIVERSITY 8.9% DOWNSIDE S ELL

Risk from • Imbalance of supply & demand

Revenue Drivers from emerging markets
• Steel prices not recovering

SELL
Lack of Efficient USD 16.1/Share
• Capex investments in 2020 are
Growth gross margin stabilizer not
Investments growth. 8.9% DOWNSIDE

Low Competitive
• Emerging international markets
Position in the • Customer preference changes
Industry

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
8.9% DOWNSIDE S ELL

Q&A

Hieu Paris Jose Magali

Ken
Nguyen Butler Zabala Centeno
Teoh

A Special Thank You To The CFA Institute, Schnitzer Inc, and PSU Advisors

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Company Description Industry Analysis Competitive Primary Driver Valuations
Position

Schnitzer Segment Revenues Crude Steel Production by Region CSS Market Iron Ore Monthly Price Statement of Consolidated

2014-2019 Future Contracts AMR Market Commodity Price Index Income

Business Segment Industry Revenue Growth Auto-Part Market 2018 Metal Industry Indicators Statement of Consolidated

Risk Assessment Industry/Cost Cost Structure SARS and Global Commodity Balance Sheet

Ratio Analysis World Steel Demand Primary Driver Valuation 1

Common Size Balance Sheet China Scrap Metal Production Valuation 2
(2010-2019)
Steel Scrap Price Curve Sensitivity Analysis
Forecasted Ratios
Porter’s Five Forces Analysis US Exports APV

World Demand For Steel Breakdown Corporation Valuation Model

Steel Scrap Price Curve Equity Valuation Model

Scrap Metal Industry Analysis Dividend Discount Model

Relationship Between Foreign Multiple Method

Volume and Emerging Market

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Crude Steel Production by Region

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Future Contracts

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Industry Revenue Growth

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
World Steel Demand

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
China Scrap Metal Production

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Steel Scrap Price Curve

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
US Exports

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
World Demand For Steel Breakdown

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Statement of consolidated income USD ($) shares in Thousands, $ in Thousands 2015A 2016A 2017A 2018A 2019A 2020F 2021F 2022F 2023F 2024F
TOTAL REVENUE $ 1,915,399 1,352,543 1,687,591 2,364,715 2,132,781 2,086,436 2,073,630 2,060,779 2,061,195 2,064,150
% growth rate YoY -24.44% -29.39% 24.77% 40.12% -9.81%
Cost of Goods Sold 1,742,678 1,175,988 1,464,508 2,010,485 1,858,535 1,829,051 1,817,979 1,806,902 1,807,405 1,810,188
AMR 1,372,456 905,863 1,158,154 1,607,628 1,458,212 1,413,509 1,400,359 1,386,151 1,382,446 1,378,854
% gross margin 7.28% 13.60% 14.08% 14.67% 12.86%
CSS 402,374 283,006 322,013 427,459 412209 415,542 417,619 420,752 424,959 431,334
% gross margin 7.52% 6.92% 5.18% 11.06% 10.28%
Intercompany eliminations -32,152 -12,881 -15,659 -24,602 -11,886
Gross Profit 172,721 176,555 223,083 354,230 274,246 257,385 255,651 253,876 253,790 253,962
Gross Profit Margin % 9.02% 13.05% 13.22% 14.98% 12.86% 12.34% 12.33% 12.32% 12.31% 12.30%
Selling, general and administrative 170,592 148,908 171,570 208,877 191,405 186,726 182,690 180,260 179,868 179,614
AMR 122,279 106,691 116,461 133,044 130,920 127,114 124,745 122,682 122,354 122,037
% of Rev 8.26% 10.18% 8.64% 7.06% 7.82%
CSS 12,998 12,571 14,321 17,044 16,499 16,581 16,473 16,363 16,290 16,295
% of Rev 2.99% 4.13% 4.22% 3.55% 3.59%
Corporate 35,315 29,646 40,788 58,789 43,986 43,030 41,473 41,216 41,224 41,283
% of Rev 1.84% 2.19% 2.42% 2.49% 2.06%
% of Sales 8.91% 11.01% 10.17% 8.83% 8.97% 8.95% 8.81% 8.75% 8.73% 8.70%
(Income) from joint ventures (1,490) (819) (3,674) (1,953) (1,452)
Goodwill Impairment Charges 141,021 8,845 - - - - - - - -
Asset impairment charges (recoveries), net 45,119 20,682 (717) (1,021) 63
Restructuring charges and other exit-related activities 13,008 6,781 (109) (661) 365
Operating Income (Loss) (195,529) (7,842) 56,013 148,988 83,865 70,659 72,961 73,616 73,922 74,347
Operating Profit Margin % -10.21% -0.58% 3.32% 6.30% 3.93% 3.39% 3.52% 3.57% 3.59% 3.60%
Interest Expense 9,191 8,889 8,081 8,983 8,266 5,915 5,181 4,129 2,907 1,515
Interest Expense 4.04% 4.83% 5.60% 8.46% 7.97%
Interest Income
Other income, net (4,256) (1,226) (758) (1,848) (641)
Income from Continuing Ops Pretax (200,464) (15,505) 48,690 141,853 76,240 64,744 67,780 69,487 71,015 72,833
Income Tax Expense (Benefit) (12,615) 735 1,322 (17,590) 17,670 13,596 14,234 14,592 14,913 15,295
Current Income Tax
Deferred Income Tax
Income from Continuing Ops (187,849) (16,240) 47,368 159,443 58,570 51,148 53,546 54,894 56,102 57,538
(Loss) income from discontinued operations, net of tax (7,227) (1,348) (390) 346 (248)
Net Income (195,076) (17,588) 46,978 159,789 58,322 51,148 53,546 54,894 56,102 57,538
Preferred Dividends - - - - - - - - - -
Net income attributable to noncontrolling interests (1,933) (1,821) (2,467) (3,338) (1,977) - - - - -
Net income attributable to SSI shareholders (197,009) (19,409) 44,511 156,451 56,345 51,148 53,546 54,894 56,102 57,538
Company Description Industry Analysis Competitive Position Primary Drivers Valuation
 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Consolidated Balance Sheet - USD ($) shares in Thousands, $ in Thousands 2020F 2021F 2022F 2023F 2024F

Current assets:
Cash and cash equivalents 13,103 13,404 13,551 13,637 13,728
Accounts receivable 142,453 141,578 140,701 140,729 140,931
Inventories 183,250 182,125 180,996 181,033 181,292
Refundable income taxes 5,867 5,867 5,867 5,867 5,867
Prepaid expenses and other current assets 115,107 115,107 115,107 115,107 115,107
Total current assets 459,780 458,082 456,222 456,373 456,925
Property, plant and equipment, net 520,296 541,108 551,930 557,449 563,024
Investments in joint ventures 10,276 10,276 10,276 10,276 10,276
Goodwill 169,237 169,237 169,237 169,237 169,237
Intangibles, net 4,482 4,482 4,482 4,482 4,482
Deferred income taxes 28,850 28,850 28,850 28,850 28,850
Other assets 25,213 25,213 25,213 25,213 25,213
TOTAL ASSETS 1,218,134 1,237,247 1,246,210 1,251,880 1,258,007
1,205,030 1,223,843 1,232,659 1,238,243 1,244,279
Current liabilities:
Short-term borrowings 1,386 1,408 1,418 1,424 1,431
Accounts payable (Note 10)
107,900 107,238 106,573 106,595 106,748
Accrued payroll and related liabilities 27,547 27,547 27,547 27,547 27,547
Environmental liabilities 6,030 6,030 6,030 6,030 6,030
Accrued income taxes
Other accrued liabilities 123,035 123,035 123,035 123,035 123,035
Total current liabilities 265,898 265,258 264,603 264,631 264,791
Deferred income taxes 25,466 25,466 25,466 25,466 25,466
Long-term debt, net of current maturities 132,992 119,845 95,213 65,398 34,473
Environmental liabilities, net of current portion 45,769 45,769 45,769 45,769 45,769
Other long-term liabilities 16,210 16,210 16,210 16,210 16,210
TOTAL LIABILITIES 486,335 472,548 447,261 417,475 386,709

Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:

Additional paid-in capital 33,700 33,700 33,700 33,700 33,700
Retained earnings 705,865.80 738,767 773,016 808,472 845,365
Accumulated other comprehensive loss (38,763) (38,763) (38,763) (38,763) (38,763)
Total SSI shareholders’ equity 727,468 760,369 794,618 830,074 866,967
Noncontrolling interests 4,332 4,332 4,332 4,332 4,332
TOTAL EQUITY 731,800 764,701 798,950 834,406 871,299
TOTAL LIABILITIES AND EQUITY 1,218,135 1,237,248 1,246,211 1,251,881 1,258,008

SSI Class A Common Stock Equity

Common stock, value 26,464 26,464 26,464 26,464 26,464
Company Description
SSI Class B Common Stock Equity
Common stock, value
Industry Analysis Competitive Position
200 200
Primary
200
Drivers
200 200
Valuation
 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

2018 Metal Industry Indicators

30

20

10
Index
0

-10

-20

-30

Leading Index of metal Prices Growth rate Non Ferrous Metal Price Index

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
2019 2020 2021 2022 2023 2024

Operating Income/profit $ 84,293 $ 70,659 $ 72,961 $ 73,616 $ 73,922 $ 74,347

* (1-t) 76.8% 79.0% 79.0% 79.0% 79.0% 79.0%
= NOPAT $ 64,757 $ 55,821 $ 57,639 $ 58,156 $ 58,398 $ 58,734

+ Dep. Expense + Amort Exp. $ 53,336 $ 60,803 $ 63,235 $ 64,500 $ 65,145 $ 65,796

= Operating Cash Flow (OCF) $ 118,093 $ 116,624 $ 120,875 $ 122,656 $ 123,543 $ 124,531

– ∆ Net Operating Working Capital Slide 15 $ 136 $ (4,903) $ (1,358) $ (1,352) $ 37 $ 302

– ∆ Gross Fixed Assets $ 90,206 $ 124,699 $ 84,047 $ 75,322 $ 70,664 $ 71,371

= FCFF (free cash flow to the firm) $ 27,751 $ (3,172) $ 38,186 $ 48,686 $ 52,842 $ 52,858

– interest expense * (1–t) $ (6,530) $ (4,673) $ (4,093) $ (3,262) $ (2,296) $ (1,197)

+ ∆ Debt $ (4,407) $ 29,499 $ (19,132) $ (27,445) $ (31,883) $ (36,310)

Dividend (not preferred) $ 20,615 $ 20,645 $ 20,645 $ 20,645 $ 20,645 $ 20,645

= FCFE $ 16,813 $ 21,654 $ 14,961 $ 17,979 $ 18,662 $ 15,352

= FCFF (Free cash flow to the firm) $ 27,751 $ (3,172) $ 38,186 $ 48,686 $ 52,842 $ 52,858
+ Tax Savings $ 1,885 $ 1,242 $ 1,088 $ 867 $ 610 $ 318
Unlevered Cash Flow $ 29,486 $ (1,930) $ 39,274 $ 49,553 $ 53,452 $ 53,176

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

APV Model 2019 2020 2021 2022 2023 2024

Forecast Period $ - $ 1 $ 2 $ 3 $ 4 $ 5

FCFF $ 27,751 $(3,172) $ 38,186 $ 48,686 $ 52,842 $ 52,858

Discounted at Ku $ 27,751 $(2,914) $ 32,226 $ 37,745 $ 37,634 $ 34,584

Tax Savings $ 1,885 $ 1,242 $ 1,088 $ 867 $ 610 $ 318

Discounted at Ku Slide 15 $ 1,885 $ 1,141 $ 918 $ 672 $ 435 $ 208

Terminal Value $ 679,660

Terminal Growth Rate $ 0 PV of Terminal Value $ 444,684

Ku $ 0

SUM OF PV's $ 590,009

Plus MV of Non-Op Assets $ 12,377
Less MV of Debt $ 176,092 Implied P/E 7.87 11.81

Intrinsic Equity Value $ 426,294 Implied EV/EBITDA 3.99 3.41

Number of Shares $ 26,465 Implied P/S 0.20 0.33
/Share Value $ 16 Implied P/B 0.61 0.78

Implied Change -5.69%

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Corporate Valuation Model 2019 2020 2021 2022 2023

0 1 2 3 4
FCFF $ 27,751 $ (3,172) $ 38,186 $ 48,686 $ 52,842
Discounted FCFF $ 27,751 $ (2,926) $ 32,482 $ 38,196 $ 38,235

Slide 15 Terminal Value

PV of Terminal Growth Rate
Terminal Growth Rate 1.00%"short-term sale outlook 1.4%" from 10K
WACC 8.42%
Present val.
SUM OF PV's $ 621,126 Implied P/E 8.44
Less MV of Debt $ 176,092 Implied EV/EBITDA 4.51
Plus MV of Non Op Assets $ 12,377 Implied P/S 0.21
Intrinsic Equity Value $ 457,411 Implied P/B 0.65
Number of Shares 26,465
/Share Value $ 17.28
Implied Change 1.19%

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Equity Cashflow Model 2019 2020 2021 2022 2023 2024

Forecast Period 0 1 2 3 4 5

FCFE $ 16,813 $ 21,654 $ 14,961 $ 17,979 $ 18,662 $ 15,352

Discounted at Ke $ 16,813 $ 19,518 $ 12,156 $ 13,167 $ 12,320 $ 9,136

P/E Terminal $ 653,440

Terminal Value $ 156,002

Terminal Growth Rate 1.00% 4.84% PV of Terminal Value $ 388,846

Ke 10.94%
Present val. Terminal

SUM OF PV's $ 455,143 Implied P/E 8.63 2.71

Plus MV of Non Op Assets $ 12,377 Implied EV/EBITDA 3.99 3.41
Intrinsic Equity Value 467,520 Implied P/S 0.21 0.00
Number of Shares 26,465 Implied P/B 0.67 0.01
/Share Value $ 17.67
Implied Change 3.43%

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Dividend Discount Model 2019 2020 2021 2022 2023 2024

Forecast Period 0 1 2 3 4 5

Dividend Growth 0.00% 0.00% 0.00% 0.00% 0.00%

Dividend Payout $ 20,615 $ 20,615 $ 20,615 $ 20,615 $ 20,615 $ 20,615

18,582 16,750 15,098 13,609 12,267

Ke 10.94% Terminal Value 320,466

Terminal Div Growth 4.23% 4.23% PV of Terminal Value 190,701

Implied Value of Equity (constant growth) $ 267,009

$ 267,009

Number of Shares $ 26,465.06

/Share Value $ 10.09

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Commercial
Metals
EBITDA $ 20.68

Nucor
EPS $ 33.56 Sims LTd
Corp
Multiple Method
EBIT $ 40.86

REV $ 13.55
Steel
LKQ Corp
Dynamics
BV $ 23.49Slide 15

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
RATIOS 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ROE 7.21% 11.22% 2.66% -35.85% 1.24% -36.22% -3.51% 8.74% 23.85% 8.32%
ROA 5.26% 6.54% 1.64% -19.92% 0.71% -20.27% -1.97% 5.03% 14.46% 5.02%
Invested Capital 1,077,893 1,513,637 1,421,706 1,164,916 1,091,715 778,860 702,811 679,669 777,594 811,255
ROIC 9.81% 2.69% 1.20% 2.40% 0.36% 4.02% 7.77% 22.72% 8.15%
Retention Ratio 0.97 0.98 0.59 1.07 (2.40) 1.10 2.05 0.54 0.87 0.63
Dividend Payout 0.03 0.02 0.41 (0.07) 3.40 (0.10) (1.05) 0.46 0.13 0.37

Current Ratio 2.88 2.80 2.89 2.81 2.62 2.68 2.24 1.92 1.76 1.74
Quick Ratio 1.20 1.37 1.51 1.39 1.40 1.38 1.25 0.97 0.95 1.04

Total Liabilities to Assets 0.27 0.41 0.37 0.44 0.43 0.44 0.44 0.42 0.39 0.40
Total Liabilities to Equity 0.37 0.70 0.60 0.80 0.75 0.79 0.78 0.74 0.65 0.66
LT Debt to Equity 0.10 0.37 0.31 0.48 0.41 0.42 0.37 0.27 0.16 0.15
Equity Multiplier 1.37 1.72 1.62 1.80 1.75 1.79 1.78 1.74 1.65 1.66
Inventory Turnover 10.19 10.58 9.98 10.24 9.35 8.12 9.77 10.79 9.45
Days Sales in Inventory 35.8 34.5 36.6 35.6 39.0 44.9 37.4 33.8 38.6

Receivables Turnover 19.43 18.19 16.07 13.43 12.73 12.00 13.34 15.33 13.54
Days in Receivables 18.8 20.1 22.7 27.2 28.7 30.4 27.4 23.8 27.0

Payables Turnover 26.96 23.37 22.70 22.98 20.96 19.95 19.57 18.37 15.41
Days Costs in Payables 13.5 15.6 16.1 15.9 17.4 18.3 18.6 19.9 23.7

Total Asset Turnover 1.42 1.89 2.11 1.90 2.19 2.07 1.48 1.66 2.09

Revenue growth 50.32% -3.42% -21.67% -3.13% -24.44% -29.39% 24.77% 40.12% -9.81%
Internal Growth Rate 6.43% 0.97% -21.34% -1.70% -22.36% -4.05% 2.70% 12.55% 3.18%

P/E 27.70 9.91 30.32 0.00 103.14 0.00 0.00 20.79 3.79 10.63
P/S 0.79 0.30 0.23 0.33 0.24 0.20 0.52 0.54 0.24 0.27

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
2 Industry Analysis 8.9% DOWNSIDE S ELL

0.4

0.3

0.2

0.1
%Change

0
2010 2012 2014 2016 2018
-0.1

-0.2

-0.3

-0.4
Foreign Volume Relation Price

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
2 Industry Analysis 8.9% DOWNSIDE S ELL

Emerging Market GDP Growth

8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2016 2017 2018 2019 2020 2021 2022 2023 2024

Emerging and Developing Asia Emerging and Developing Europe

Emerging market and developing economies

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
2 Industry Analysis 8.9% DOWNSIDE S ELL

China Crude Steel Production

$900,000

$800,000

$700,000

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Rest of the World

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
Industry Cost Structure

INDUSTRY COST STRUCTURE STEEL SECTOR COST STRUCTURE

3%
6%
5%

24% 22%

3%
3%
1%
0%
2%
13% 53%
1%
64%

Profit Wages Purchases Depreciation

Profit Wages Purchases Depreciation Marketing Rent & Utilities Other
Marketing Rent & Utilities Other

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Relationship Between Foreign Volume and Emerging Market

1.5

1.0

0.5

0.0
2010 2012 2014 2016 2018

-0.5

-1.0

Volume Emerging Market (Asia) Emerging Market EU

Company Description Industry Analysis Competitive Position Primary Drivers Valuation

 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
COMMON SIZE BALANCE SHEET 2019 2020 2021 2022 2023 2024
Current assets:
Cash and cash equivalents 1.1% 1.1% 1.1% 1.1% 1.1% 1.1%
Accounts
receivable 12.5% 11.7% 11.4% 11.3% 11.2% 11.2%
Inventorie
s 16.1% 15.0% 14.7% 14.5% 14.5% 14.4%
Refundable income taxes 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Prepaid expenses and other current assets
9.9% 9.4% 9.3% 9.2% 9.2% 9.1%
Total
current
assets 40.2% 37.7% 37.0% 36.6% 36.5% 36.3%
Property, plant and equipment, net
39.3% 42.7% 43.7% 44.3% 44.5% 44.8%
Investments in joint ventures 0.9% 0.8% 0.8% 0.8% 0.8% 0.8%
Goodwill 14.6% 13.9% 13.7% 13.6% 13.5% 13.5%
Intangibles, net 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
Deferred income taxes 2.5% 2.4% 2.3% 2.3% 2.3% 2.3%
Other assets 2.2% 2.1% 2.0% 2.0% 2.0% 2.0%
TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Current liabilities:
Short-term borrowings 0% 0% 0% 0% 0% 0%
Accounts 24% 22% 23% 24% 26% 28%
payable
(Note 10)
Accrued payroll and related liabilities 6% 6% 6% 6% 7% 7%

Environmental liabilities 1% 1% 1% 1% 1% 2%
Accrued income taxes 0% 0% 0% 0% 0% 0%
Other accrued liabilities 27% 25% 26% 28% 29% 32%
Total 58% 55% 56% 59% 63% 68%
current
liabilities
Deferred income taxes 6% 5% 5% 6% 6% 7%

Long-term debt, net of current maturities23% 27% 25% 21% 16% 9%

Environmental liabilities, net of current10%
portion 9% 10% 10% 11% 12%
Other long-term liabilities 4% 3% 3% 4% 4% 4%
TOTAL LIABILITIES 100% 100% 100% 100% 100% 100%

Commitments and contingencies (Note 8)

Redeemable noncontrolling interest 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity:

Preferred stock – 20,000 shares $1.00 par4% value authorized,
4% none
3%issued 3% 3% 3%
Additional paid-in capital 5% 5% 4% 4% 4% 4%
Retained earnings 96% 96% 97% 97% 97% 97%
Accumulated other comprehensive loss -6% -5% -5% -5% -5% -4%
Total SSI shareholders’ equity 99% 99% 99% 99% 99% 100%
Company Description Industry Analysis
Noncontrolling interests
TOTAL EQUITY
Competitive Position
1%
100%
1%
100%
Primary Drivers
1%
100%
1%
100%
1%
100%
0%
100%
Valuation
TOTAL LIABILITIES AND EQUITY
 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL
FORECASTED RATIOS FORECASTED RATIOS
2020 2021 2022 2023 2024 2020 2021 2022 2023 2024
ROE 6.99% 7.00% 6.87% 6.72% 6.60%
Liquidity ROA 4.20% 4.33% 4.40% 4.48% 4.57%
Current Ratio 1.73 1.73 1.72 1.72 1.73 Invested Capital 844,576 864,351 873,978 879,627 885,601
Quick Ratio 1.04 1.04 1.04 1.04 1.04 ROIC 6.74% 6.75% 6.69% 6.66% 6.65%
Retention Ratio 0.60 0.61 0.62 0.63 0.64
Leverage Dividend Payout 0.40 0.39 0.38 0.37 0.36
Total Liabilities to 0.40 0.38 0.36 0.33 0.31
Assets Enterprise Value 577,630 564,204 539,435 509,541 478,532
Total Liabilities to 0.66 0.62 0.56 0.50 0.44
EV to EBITDA 4.39 4.14 3.91 3.66 3.41
Equity
LT Debt to Equity 0.18 0.16 0.12 0.08 0.04 EV to invested capital
Equity Multiplier 1.66 1.62 1.56 1.50 1.44 Tobin's Q 0.77 0.75 0.73 0.70 0.67

Asset Turnover Ratios EPS GAAP 1.86 1.95 1.99 2.04 2.09
BV 727,468 760,369 794,618 830,074 866,967
Inventory Turnover 9.87 9.95 9.95 9.98 9.99 Average Closing Price (TTM Daily
Days Sales in Inventory 37.0 36.7 36.7 36.6 36.5 Average)
Market Capitilization (Weighted 452,023 452,023 452,023 452,023 452,023
Receivables Turnover 14.49 14.60 14.60 14.65 14.66 Average Yearly)
Days in Receivables 25.2 25.0 25.0 24.9 24.9
P/B 0.62 0.59 0.57 0.54 0.52
P/E
Payables Turnover 16.73 16.89 16.89 16.96 16.97
P/S 0.22 0.22 0.22 0.22 0.22
Days Costs in Payables 21.8 21.6 21.6 21.5 21.5

Total Asset Turnover 1.79 1.70 1.67 1.65 1.64

Growth
Revenue growth -2.17% -0.61% -0.62% 0.02% 0.14%
Internal Growth Rate 2.50% 2.66% 2.75% 2.83% 2.93%

Company
Interest CoverageDescription
Ratio Industry
22.23 26.29Analysis
33.45 47.84 Competitive
92.52 Position Primary Drivers Valuation
 USD 16.10/Share
6 Appendix 8.9% DOWNSIDE S ELL

Company Description Industry Analysis Competitive Position Primary Drivers Valuation