Severstal - Trading Update Review and 1Q Earnings Preview
Severstal published a 1Q19 trading update today that was in line with expectations. When it reports earnings for the period on April 23, we expect EBITDA to have fallen 18% Q-o-Q to $650 mln, for a fairly weak 32% margin. Meanwhile, leveraged FCF should have been supported by a working capital release and a slow start to the year in terms of capex. We expect leveraged FCF of around $400 mln for a 3% yield. We believe that Severstal will pay out 100% of LFCF or slightly more for the 1Q dividend ($400-450 mln). At current spot steel prices and USD/RUB, Severstal is trading at a 2019E EV/EBITDA of 5.8 and a 10.5% dividend yield, in line with Russian peers. We reiterate our HOLD recommendation.
PAO Severstal is an integrated Iron & Steel works company with a range of products: hot and cold rolled steel, roll-formed shapes and pipes, rolled sections, a large group of coke products and by-products. Co. also has various social responsibilities such as the operation and maintenance of sports complexes, holiday and recreational facilities and public housing. Co.'s operations are organized along three principal divisions: Severstal Russian Steel engaged in crude steel production; Severstal Resources engaged in the production of iron ore concentrate, pellets and coking coal; and Severstal International engaged in the production of high-quality flat-rolled products.
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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