Report
Alexey Kirichok ...
  • Irina Lapshina
  • Vladimir Lezhnev

Evraz - 2Q20 Trading Update In-Line; Earnings Preview

Evraz has published a 2Q20 trading update that was slightly ahead of our expectations on steel sales volumes and in line on coking coal volumes, which were low. We have slightly raised our 1H20 EBITDA estimate to $1.05 bln. Assuming a 5-10% rise in steel prices from spot levels and a normalization in the sales mix over the remainder of this year and next, the stock is trading at a 2021E EV/EBITDA of around 4.0 and a 2021E LFCF yield of 14%.> Pickup in Russian steel sales volumes driven by boost in exports. The external steel product sales volumes of the Russian division grew 8% Q-o-Q to a record 2.9 mln tonnes, as Evraz managed to increase its sales of semis (mainly to Asian markets) 23% Q-o-Q to 1.7 mln tonnes. Due to the Covid-related lockdown in Russia, sales of finished products declined 8% Q-o-Q to 1.25 mln tonnes, which brought their share down 7 pp Q-o-Q to 43%. Sales of finished products were also affected by scheduled capital repairs at both the ZSMK and NTMK sites. As a result of the weaker sales mix and lower benchmark prices, the average realized steel price on an EXW basis dropped 16% Q-o-Q, which was weaker than the price performance for MMK (-12%) and Severstal (-4%).> Coking coal production and sales low, as expected. External sales of coking coal products were down 15% Q-o-Q due to a drop in shipments to Europe. ROM coal output decreased 27% Q-o-Q to 4.2 mln tonnes. As we outlined in our recent report, this was mainly due to the suspension of mining at Mezhegeyugol (announced in February) and lower volumes from the Raspadsky open pit, where Evraz has the flexibility to adjust production based on market conditions. Evraz ultimately decided to suspend production at the Raspadsky open pit in 2Q20. In addition, Evraz moved the longwalls at the Yuzhkuzbassugol mines, which also affected production. As the assets where operations were suspended produce quite cheap coking coal, the share of premium grades in the total mix likely increased in 2Q20 and Evraz's average realized coking coal concentrate price on an EXW basis outperformed export benchmarks (with a just 7% Q-o-Q decline). The company guides higher coal production Q-o-Q in 3Q20, as it has completed the longwall moves at Yuzhkuzbassugol. > 1H20 financials should show resilience. As steel sales volumes were above our expectations, we have slightly increased our 1H20 EBITDA forecast to $1.05 bln, meaning we now anticipate a decline of just 6% Q-o-Q. We expect FCF of $325 mln (for a decent 6% yield), supported by a mild working capital release. Assuming a payout of around 70-80% of FCF, we forecast the dividend for 1H20 at $250 mln. Evraz will report its 1H20 IFRS results next Thursday (August 6).
Underlying
Evraz PLC

Evraz engages in the production and distribution of steel and related products and coal and iron ore mining. Co. also produces vanadium products. Co. has four segments: Steel, which includes production of steel and related products at all mills except for those in North America, and includes the extraction of vanadium ore and production of vanadium products, iron ore mining and enrichment and certain energy-generating companies; Steel, North America, which includes production of steel and related products in the U.S. and Canada; Coal, which includes coal mining and enrichment; and Other operations, which includes energy-generating companies, shipping and railway transportation companies.

Provider
Sberbank
Sberbank

​Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.

Analysts
Alexey Kirichok

Irina Lapshina

Vladimir Lezhnev

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