Tenaris SA (TS, Financial), headquartered in Luxembourg, is a multinational steel company specializing in the manufacturing and distribution of seamless and welded steel tubes, alongside related services, serving both the energy sector and various industrial applications. The company's diverse range of products serve an array of markets, including oil and gas exploration and production, oilfield services, power generation and industrial processing. The stock is also listed in Milan (MIL:TEN, Financial) and is a constituent of the Italian benchmark, the FTSE MIB Index.
Central to Tenaris' operational framework are these foundational principles: vertical integration, global presence and innovation.
Vertical integration
Tenaris maintains full ownership and operation of its steelmaking, pipe rolling and forming, heat treatment threading, and finishing facilities. This integrated approach empowers the company to ensure the excellence of its products and services, delivering them promptly and cost-effectively to its customers.
Global presence and innovation
With manufacturing operations in 15 countries complemented with service centers in 25 countries, the company’s global footprint facilitates the company's ability to cater to customers worldwide, catering to their individual requirements. For example, Tenaris’ Rig Direct offering sees it partner with oil and gas customers throughout their drilling projects.
Beginning with well planning, where its technical experts optimize product selection to maximize performance while streamlining costs and continuing through supply chain integration, Tenaris works alongside its customers, producing and delivering what they need whenever they need it. Its customers include supermajors such as Exxon Mobil Corp. (XOM, Financial) and Chevron Corp. (CVX, Financial), large national oil Companies such as Abu Dhabi National Oil company and large industrial companies such as Germany’s Siemens AG (XTER:SIE, Financial).
Tenaris makes significant investments in research and development to cultivate novel products and technologies that harmonize with the evolving demands of its customer base.
Products and services
Tenaris' offerings encompass a comprehensive suite of products and services. These include:
- Casing: These steel pipes are deployed to safeguard oil and gas wells against the encroaching rock formations. Typically constituted of corrosion-resistant high-strength steel, casing is pivotal in maintaining well integrity.
- Tubing: Designed for conveying oil and gas from wells to surface facilities, tubing is typically forged from high-quality steel known for its strength and flexibility.
- Line pipe: Serving the role of long-distance oil and gas transport, line pipes are fabricated from high-grade steel renowned for its weldability and tensile strength.
- Sucker rods: These steel rods are used to lift oil from wells, necessitating their construction from fatigue-resistant, high-strength steel.
- Coiled tubing: A versatile steel tubing that can be coiled onto a reel for facile transportation and deployment. Coiled tubing has multifarious applications, including well intervention and drilling.
- Steel grades: Tenaris offers a diverse spectrum of steel grades, each with unique attributes such as strength, resilience and corrosion resistance. This expansive selection caters to the specialized needs of its clients.
- Premium connections: Tenaris provides threaded and welded connections held to the most stringent safety and performance standards. Employed across a variety of sectors like oil and gas exploration and production, as well as power generation, these premium connections are hallmarked for their reliability.
- Mechanical and structural pipes: These steel pipes are pivotal components across various industrial contexts, ranging from construction and shipbuilding to mining. Renowned for their durability, strength and corrosion resistance, Tenaris' mechanical and structural pipes accommodate diverse applications.
Operations
Tenaris operates mainly in three main sectors.
The first is oil and gas. It is the largest arena for Tenaris' product and service offerings for steel tubes and pipes across the upstream, midstream and downstream segments of the industry.
Second is power generation. In tandem with the escalating demand for renewable energy sources, the power generation sector presents burgeoning opportunities for Tenaris' products. The company is strategically positioned to harness this growth. It provides specialized tubes and pipes in a variety of alloys for heat-recovery steam generators, customized solutions for applications in waste-to-energy and biomass plants and high-oxidation resistant tubes and pipes for super critical and ultra super critical boilers.
The third and final sector is industrial processing. Tenaris' products find utility across various industrial applications, such as chemical processing and manufacturing. The company has firmly established its presence within this sector, upholding its commitment to fulfilling the diverse requisites of its customers.
Risks and opportunities
In navigating its operational landscape, Tenaris confronts several key risks.
The first risk is global oil and gas industry dynamics. Tenaris remains attuned to the cyclical patterns of the oil and gas industry, recognizing that downturns impact sales and profits. To mitigate this vulnerability, the company actively diversifies its customer base and ventures into novel markets. For example, it is making strides in energy transition applications for its core capabilities by entering the markets for hydrogen storage and transportation, carbon capture utilization and storage and geothermal, which all need high-strength large steel tubular vessels. Carbon capture utilization and storage is a massive growth area, with every large oil and gas company investing in these applications in some capacity.
Another risk is competition from peers. Tenaris contends with a competitive landscape populated by multiple steel pipe manufacturers, of which many are participating in the commoditized space of steel pipes. The company’s resilience lies in its continuous investment in research and development, coupled with its unwavering commitment to delivering high-quality products and services.
The ever-changing regulatory milieu, inclusive of environmental regulations, can wield influence over Tenaris' operations. The company diligently monitors these changes, undertaking measures to align with pertinent regulations.
Tenaris acknowledges the prospect of political instability in certain operational countries as capable of disrupting its activities. In response, the company pursues diversification and cultivates partnerships with local governments to cultivate a stable operational ecosystem. The U.S. is its biggest market, followed by South America with a large exposure to Argentina, both of which are growth markets, given long-lived shale oil and gas production in those regions.
Guru trades and financials
Tenaris caught my eye because I noticed famed investor Jeremy Grantham (Trades, Portfolio) bought into the company earlier this year. Grantham is known for his expertise in the natural resources space. The stock has an impressive GF Score of 90 out of 100 and is rated significantly undervalued by the GF Value Line.
The stock has a financial strength rank of 9 out of 10, a decent Piotroski F-Score of 7 out of 9 and a very safe Altman Z-Score of 6.58, giving Tenaris the financial strength to engage in opportunistic mergers and acquisitions or return more funds to shareholders.
The stock has performed well recently with momentum of 10 out of 10. This is likely driven by a rebound in oil prices and a realization by investors that energy security requires more hydrocarbon investment and greenhouse gas emissions can be tackled in part by carbon capture and storage, which is creating a whole new industrial sector for energy market equipment providers, especially in the steel tubing needed to transport captured carbon dioxide to storage facilities.
Conclusion
In sum, Tenaris takes center stage as a preeminent global steel pipe manufacturer with an impressive history of performance. The company is primed to harness the growth potential presented by the oil and gas, power generation and industrial processing sectors. While navigating inherent risks, Tenaris employs strategic approaches to mitigate vulnerabilities, positioning itself for sustained growth. Investors who want a way to play both the oil and gas recovery and the energy transition should put this stock on their watchlist.
