Global Emerging Markets Argentina

Company

Oil & Gas

5 November 2009
Results
Tenaris
Reuters: TS.N Bloomberg: TS UN Exchange: NYS Ticker: TS Buy
Price at 4 Nov 2009 (USD) 39.38

3Q09 results slightly ahead of

Global Markets Research

Target price 41.00

52-week range 40.43 - 15.10

estimates. Recovery in sight.

Price/price relative

90
75
Marcus Sequeira
60
Research Analyst
(+1) 212 250-3255 45
marcus.sequeira@db.com 30
15
0
Operating results slightly ahead of estimates
11/07 5/08 11/08 5/09
Net revenues of $1.7bn came in line with our estimates. EBITDA of $488mn was
Tenaris
slightly ahead of our forecasts, but down sharply YoY. Margins came slightly
MERVAL INDEX (Rebased)
better QoQ and versus our expectations. Net income of $230mn ($0.39/ADS)
came in slightly below our forecasts on higher financial expenses (which included Performance (%) 1m 3m 12m
a non recurring item). Operating environment is still weak but there are signs of a Absolute 17.5 27.3 65.8
MERVAL INDEX 10.8 26.1 99.7
recovery. Tenaris’ position relative to peers remains favorable and therefore we
maintain our Buy recommendation. Stock data
Prices remain strong and offset a sharp fall in volumes Market cap (USDm) 23,234.2
Average realization prices in the Tubes division came in line with expectations, Shares outstanding (m) 590.0
ADR ratio 0.0
while prices in the Projects segment surprised on the upside. Pricing trends in the Free float (%) 40
Tube division continue to benefit from better product mix. Demand remained Volume (4 Nov 2009) 520,900
weak across the board with the exception of Middle East and West Africa. MERVAL INDEX 2,243
Meanwhile, Tenaris’ margins benefited from the use of lower priced input costs. Exchange rate (USD/USD} 1.00

EBITDA margin in 3Q09 was 28% versus 34% in 3Q08 and 27% in 2Q09. Key indicators (FY1)
Outlook is promising, recovery signs expected for 4Q09 ROE (%) 14.3
Management presented a more optimistic outlook as commodity prices have ROA (%) 8.5
Net debt/equity (%) 5.8
recovered (though NA natural gas prices should remain under pressure for a Book value/share (USD) 15.35
while). NA oil rig counts have stabilized and showed signs of recovery, while Price/book (x) 2.6
inventory levels in NA started to decline gradually. As such, the level of incoming Net interest cover (x) 11.1
orders started to rise, which should result in higher shipments in 4Q09. Moreover, EBIT margin (%) 22.6
margins should benefit from higher utilization rates and a decline in input costs.
Cash flow generation remains strong
Tenaris increased its cash flow generation by reducing its working capital by
$359mn during the quarter. As such, Tenaris turned net cash positive during the
quarter at $557mn.
Valuation
Our DCF-based $41 PT reflects a WACC at 10.4%. Risks include: (1) acquisition
execution risk; 2) new entrants into this lucrative market; 3) irrational pricing by
Chinese pipe producers; 4) and softening global demand for oil & gas.
Forecasts and ratios
Year End Dec 31 2007A 2008A 2009E 2010E 2011E
Revenue (USDm) 10,181 12,131 8,053 8,943 10,657
EBITDA (USDm) 3,497 4,064 2,321 2,633 3,190
EBITDA margin (%) 34.3 33.5 28.8 29.4 29.9
EBIT (USDm) 2,982 3,531 1,822 2,134 2,689
Net Income (USDm) 1,924 2,125 1,228 1,443 1,852
EPS (USD) 3.26 3.60 2.08 2.45 4.12
P/E (x) 14.6 12.3 18.9 16.1 9.6
EV/EBITDA (x) 8.7 6.8 10.1 8.6 7.0
Source: Deutsche Bank estimates, company data

Deutsche Bank Securities Inc.

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
5 November 2009 Oil & Gas Tenaris

Tenaris – 3Q09 review

Operating results slightly ahead of estimates
As expected, operating trends in 3Q09 were weak both YoY, due to the sharp decline in
demand and QoQ due to seasonality factors. Net revenues of $1.7bn came in line with our
estimates, as weaker Tube sales were offset by much stronger performance in the Projects
division. EBITDA of $488mn was slightly ahead of our estimates of $469mn (+5%), but down
54%YoY. Operating margins were in line with our forecasts. Net income of $230mn
($0.39/ADS) came in slightly below our expectations, due to (1) higher financial expenses,
which included $11mn of losses on interest rate swaps, and (2) lower equity income, partially
offset by lower-than-expected effective tax rate.

Figure 1: Tenaris – 3Q09 earnings

US$ million 3Q09A
3Q09A 3Q09E 3Q08A 2Q09A 3Q09E 3Q08A 2Q09A

Sales - Tubes 1,361.0 1,408.3 2,601.0 1,718.7

Sales - Projects 288.7 214.0 319.0 254.4
Sales - Other 121.7 118.8 198.0 123.2
Total net sales 1,771.4 1,741.1 3,118.0 2,096.3 2% -43% -15%

Gross profit - Tubes 571.6 608.7 1,225.1 740.8

Gross profit - Projects 83.7 47.5 86.1 63.6
Gross profit - Other 36.0 17.8 61.4 27.1
Total gross profit 691.3 674.1 1,372.6 831.5 3% -50% -17%
Gross margin 39% 39% 44% 40%

Operating income - Tubes 285.8 311.7 859.5 385.0

Operating income - Projects 59.5 28.7 44.3 45.5
Operating income - Other 15.2 2.4 30.1 6.3
Total operating income 360.5 342.8 933.9 436.8 5% -61% -17%
Operating margin 20% 20% 30% 21%

Depreciation and amortization 127.8 125.9 134.9 126.3

EBITDA 488.3 468.7 1,068.8 563.1 4% -54% -13%
EBITDA margin 28% 27% 34% 27%

Net financial expense (35.9) (32.1) (55.3) (32.2)

Equity income 10.3 25.0 24.3 66.5
Pretax income 334.8 335.7 902.9 471.1 0% -63% -29%
Income taxes (97.6) (100.7) (271.7) (114.5)
Minority interest (7.4) 4.9 (60.5) 6.8

Net Income bf extraordinaries 229.8 239.9 570.6 363.4 -4% -60% -37%
Extraordinaries 0.0 0.0 0.0 (20.2)
Net Income reported 229.8 239.9 570.6 343.3 -4% -60% -33%

EPADS - bf extraordinaries 0.39 0.41 0.97 0.62

EPADS - reported 0.39 0.41 0.97 0.58
Source: Deutsche Bank and company reports.

Page 2 Deutsche Bank Securities Inc.

 5 November 2009 Oil & Gas Tenaris

Shipments came in line with

Figure 2: Tenaris – Tubes division
estimates but showed a sharp
3Q09A
deterioration YoY. Improvement
3Q09A 3Q09E 3Q08A 2Q09A 3Q09E 3Q08A 2Q09A
in sales mix resulted in solid
Tubes - seamless 407 423 682 497 -4% -40% -18%
average realization prices.
Tubes - welded 67 63 263 65 6% -75% 3%
COGS started to decline as
Tubes - total volumes 474 486 945 562 -2% -50% -16%
lower cost inventory is used.
Surge in opex per ton reflects
US$/ton
low capacity utilization rates.
Average realization price 2,871 2,898 2,752 3,058 -1% 4% -6%
Demand weakness seen across
COGS per ton 1,665 1,645 1,456 1,740 1% 14% -4%
the board, but Africa continues
Opex per ton 603 611 387 633 -1% 56% -5%
to benefit from deepwater Source: Deutsche Bank and company reports.

activity. Volumes in the Middle

East were also solid. On the
other hand, demand was
sharply lower YoY in NA, SA,
and Europe. Operating margins
were in line with expectations. Figure 3: Tenaris – Projects division
3Q09A
3Q09A 3Q09E 3Q08A 2Q09A 3Q09E 3Q08A 2Q09A
Results in the Projects division
Projects - volumes 97 85 155 90 14% -37% 8%
came in better than our
conservative estimates.
US$/ton
However, shipments to South
Average realization price 2,976 2,511 2,058 2,827 19% 45% 5%
America remain weak.
COGS per ton 2,113 1,953 1,502 2,120 8% 41% 0%
Operating margins came in
Opex per ton 250 221 270 201 13% -7% 24%
better than expected, showing Source: Deutsche Bank and company reports.

YoY and QoQ improvement.

Figure 4: Tenaris – Others division
3Q09A
3Q09A 3Q09E 3Q08A 2Q09A 3Q09E 3Q08A 2Q09A
QoQ improvement but sharp
Net Sales 121.7 118.8 198.0 123.2 2% -39% -1%
YoY deterioration in sales of
COGS (90.1) (101.0) (136.6) (96.1) -11% -34% -6%
industrial equipment and sucker
Gross profit 31.6 17.8 61.4 27.1 78% -48% 17%
rods reflects lower economic
Gross margin 26% 15% 31% 22% 73% -16% 18%
activity in US and EU. Demand
in Brazil remains strong.
Operating expenses (20.8) (15.4) (31.3) (20.8) 34% -34% 0%
Operating income 10.9 2.4 30.1 6.3 358% -64% 73%
Operating margin 9% 2% 15% 5%
Source: Deutsche Bank and company reports.

Figure 5: Tenaris – Balance sheet

Tenaris continues to increase its
US$ million 3Q09A
cash flow generation and
3Q09A 3Q09E 3Q08A 2Q09A 3Q09E 3Q08A 2Q09A
optimizing its working capital.
Cash 1,741.4 1,190.6 1,489.8 1,622.9 46% 17% 7%
As a result, leverage ratios
Short term investments 528.9 273.5 27.0 273.5
continue to improve. Tenaris
Short term debt 868.4 906.0 1,404.1 1,020.0 -4% -38% -15%
turned net cash positive during
Long term debt 844.9 886.7 1,600.9 998.3 -5% -47% -15%
the quarter.
Equity 9,601.5 8,876.9 8,686.2 8,637.0 8% 11% 11%

Net debt -556.9 328.7 1,488.2 121.9 -269% -137% -557%

Net debt to net capital -6% 4% 15% 1%
Source: Deutsche Bank and company reports.

Deutsche Bank Securities Inc. Page 3

5 November 2009 Oil & Gas Tenaris

Tenaris
Valuation
We derive our $41/ADR price target using DCF analysis. We use the DCF methodology (10-
year horizon) because we consider it a superior indicator of value to multiples, as it relies on
free cash flows generated over a longer period of time rather than the profitability of a single
year. Our assumptions include 7.0% after tax cost-of-debt and 12.5% cost-of-equity that
reflects a 3.0% country risk premium based on the proportionate country risks of each of
Tenaris' geographically diverse production facilities (Argentina, Mexico, Italy, Japan, Canada,
Romania, and the US) and 5% equity risk premium. As a result, we estimate Tenaris' WACC
at 10.4%. We assume a 3.0% long-term growth rate as we believe that the company will
apply its strong free-cash flow generation to foster growth.

Risks
Risks to our recommendation include: (1) accelerated competitor success; 2) irrational pricing
by Chinese pipe producers; 3) softening of global demand for oil & gas on a long-term basis;
4) longer than expected weakness in Canada drilling; and 5) volatile oil prices as they affect
stock performance.

Page 4 Deutsche Bank Securities Inc.

5 November 2009 Oil & Gas Tenaris

Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Tenaris TS.N 39.38 (USD) 4 Nov 09 2,6,8
*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.

Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See
“Important Disclosures Required by Non-US Regulators” and Explanatory Notes.
2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company
calculated under computational methods required by US law.

8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services
from this company in the next three months.

Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the “Important Disclosures Required by US Regulators” and the Explanatory Notes.
2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company
calculated under computational methods required by US law.

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=TS.N.

Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject
issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any
compensation for providing a specific recommendation or view in this report. Marcus Sequeira

Deutsche Bank Securities Inc. Page 5

5 November 2009 Oil & Gas Tenaris

Historical recommendations and target price: Tenaris (TS.N)

(as of 11/4/2009)
80.00 Previous Recommendations

70.00 Strong Buy

Buy
1 Market Perform
60.00 Underperform
Not Rated
S ec ur it y P r ic e

50.00 Suspended Rating

Current Recommendations
4
40.00 Buy
Hold
30.00 2 Sell
Not Rated
3 Suspended Rating
20.00
*New Recommendation Structure
10.00 as of September 9, 2002

0.00
Nov 07 Feb 08 May 08 Aug 08 Nov 08 Feb 09 May 09 Aug 09
Da t e

1. 13/5/2008: Buy, Target Price Change USD68.00 3. 6/3/2009: Buy, Target Price Change USD30.00
2. 20/10/2008: Buy, Target Price Change USD44.00 4. 1/10/2009: Buy, Target Price Change USD41.00

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price 400 45%
from current price to projected target price plus pro- 40%
jected dividend yield ) , we recommend that investors 300
buy the stock.
200
Sell: Based on a current 12-month view of total share- 15%
holder return, we recommend that investors sell the 100 13% 12%
8%
stock
Hold: We take a neutral view on the stock 12-months 0
out and, based on this time horizon, do not recommend Buy Hold Sell
either a Buy or Sell.
Notes:
Companies Covered Cos. w/ Banking Relationship
1. Newly issued research recommendations and target
prices always supersede previously published research. Global Universe
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of
10% or more over a 12-month period
Hold: Expected total return (including dividends)
between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -
10% or worse over a 12-month period

Page 6 Deutsche Bank Securities Inc.

5 November 2009 Oil & Gas Tenaris

Regulatory Disclosures
1. Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
http://gm.db.com.

3. Country-Specific Disclosures
Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian
Corporations Act.
EU countries: Disclosures relating to our obligations under MiFiD can be found at http://globalmarkets.db.com/riskdisclosures.
Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration
number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117.
Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock
transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction
amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price
fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange
fluctuations.
New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the
New Zealand Securities Market Act 1988.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any
appraisal or evaluation activity requiring a license in the Russian Federation.

Deutsche Bank Securities Inc. Page 7

Deutsche Bank Securities Inc.

Latin American locations

Deutsche Bank Brazil Deutsche Bank Mexico Deutsche Bank Chile

Av. Brigadeiro Faira Lima, 3900 Blvd. Manuel Avila Camacho No. Av El Bosque Sur 130
CEP 04538-132 São Paulo 40, Piso 5 - Las Condes
Brazil Colonia Lomas de Chapultepec Santiago de Chile
Tel: (5511) 2113 5000 Piso 17 Chile
11000 Mexico City, Mexico Tel: (562) 337 7700
Tel: (5255) 5201 8000

International locations

Deutsche Bank Securities Inc. Deutsche Bank AG London Deutsche Bank AG Deutsche Bank AG
60 Wall Street 1 Great Winchester Street Große Gallusstraße 10-14 Deutsche Bank Place
New York, NY 10005 London EC2N 2EQ 60272 Frankfurt am Main Level 16
United States of America United Kingdom Germany Corner of Hunter & Phillip Streets
Tel: (1) 212 250 2500 Tel: (44) 20 7545 8000 Tel: (49) 69 910 00 Sydney, NSW 2000
Australia
Tel: (61) 2 8258 1234
Deutsche Bank AG Deutsche Securities Inc.
Level 55 2-11-1 Nagatacho
Cheung Kong Center Sanno Park Tower
2 Queen's Road Central Chiyoda-ku, Tokyo 100-6171
Hong Kong Japan
Tel: (852) 2203 8888 Tel: (81) 3 5156 6701

Global Disclaimer

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources
believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.

Deutsche Bank may (1) engage in securities transactions in a manner inconsistent with this research report, (2) with respect to securities covered by this report, sell to or buy from customers on a principal basis, and (3) consider
this report in deciding to trade on a proprietary basis.

Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without
notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes
inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial
instruments or to participate in any particular trading strategy.

Deutsche Bank has instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for "Hold" rated stocks
having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at http://gm.db.com to determine the target
price of any stock.

The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and
other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future
results.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank
Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved
and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin.
This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch, and recipients in
Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is
not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch accepts legal responsibility to such person for the contents
of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain
a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG
Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this
report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting.
Copyright © 2009 Deutsche Bank AG