Severstal - 4Q19 Results In Line; Quarterly Dividend Yield Is 2.8%

Severstal has reported 4Q19 IFRS results that were in line with our and consensus estimates on EBITDA and LFCF. At spot steel and bulks prices and the current USD/RUB rate, Severstal is trading at a 2020E EV/EBITDA of 5.2 and a dividend yield to be paid in 2020 of 12%.> EBITDA came in at $602 mln, down 24% Q-o-Q for a 33% margin. Severstal reported $224 mln in EBITDA gains from its transformation program in 2019 (which included a better product mix, higher sales volumes and improved operating efficiency), below the annual target of $350 mln due to lower external pellet sales in 2H19, as Severstal held back some sales due to falling prices.> Leveraged FCF in 4Q19 came in at $101 mln for a 0.8% yield. The BoD recommended a 4Q19 dividend of $340 mln, for a 2.8% yield. Full-year LFCF was $1.1 bln, while capex totaled $1.2 bln, exceeding the base-line number of $800 mln (used to calculate adjusted LFCF) by $400 mln. The adjusted LFCF figure used as the basis for the dividend calculation therefore came in at $1.5 bln, fully in line with the total dividend announced for 2019.> Severstal noted the positive global steel price performance in 1Q20 on the back of capacity cuts and restocking following the US-China phase one agreement. The company said that the domestic premium (currently $80/tonne for HRC over the export netback) is being supported by the stronger ruble and renovation at several mills. For instance, we note that MMK plans to renovate its HRC mill 2500 in March-June, which will cut its supply of HRC during this period by around 1 mln tonnes, which is up to a respective 30% and 15% of total Russian domestic HRC and total domestic flat steel product demand for that period, based on the average numbers for 2018-19, according to Metal Expert. Although this should be partially offset by existing market inventories, we think this will be one of the key factors supporting the domestic premium in 1H20.