NLMK - Weak 3Q19 Earnings, As Expected; Downgrade to HOLD
Yesterday, NLMK reported weak 3Q19 IFRS results as expected. Should demand in its export markets remain weak in the months ahead, we believe 4Q19 EBITDA could fall to around $500 mln, which would suggest downside for full-year consensus earnings estimates and probably trigger downgrades for 2020 too. At spot steel and bulks prices and the current USD/RUB rate, NLMK is trading at a 2020E EV/EBITDA of 8.2, LFCF yield of 5% and dividend yield (for dividends to be paid in 2020) of 9%. We have cut our target price by 17% to $20.10 per GDR and have changed our recommendation from BUY to HOLD as we wait for a supply response to stabilize steel prices.
Novolipetsk Steel is a vertically integrated steel manufacturing and production group based in Russia. Co. specializes in the manufacturing of high-quality hot and cold rolled steel in a variety of grades and sizes. Co. is also engaged in production and sales of flat steel products including slabs, hot rolled and cold rolled sheet, electrical steel, galvanized steel, cold rolled sheet with polymeric coatings. In addition, Co.'s areas of manufacturing include sintering, coke production, blast furnace production, steel-making, hot and cold-rolled flat steel production, galvanized and prepainted steel production. Co. exports its products to 70 countries around the world.
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.
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