WOOD Flash – EVRAZ: 1H18 financial results - ahead of consensus and a much higher than expected dividend
EVRAZ reported its 1H18 financial results this morning, slightly ahead of consensus and our estimates. EBITDA rose 29% hoh and FCF (our definition) fell 25% hoh due, to a USD 594m negative working capital movement. Leverage continued to fall, to only 1.15x ND/EBITDA, despite most of the FCF and proceeds from asset disposals being paid out in dividends during the half. The main news, however, was that EVRAZ also announced a second interim dividend of USD 0.40/share (USD 577m), a 5.6% yield based on the closing price yesterday. This was much higher than the Bloomberg consensus forecast of USD 0.12/share. With the financials slightly ahead of consensus, and a much stronger dividend than expected, we see the results as positive for the share price.EVRAZ is now trading on a premium to our price target (PT), despite it being a BUY-rated stock and our top pick in March, when we last updated our forecasts. Since then, EVRAZ has benefitted from higher-than-expected North American steel prices, higher vanadium prices and a weaker RUB, so we see some upside risk to our existing numbers. We will revisit our model in the near future. On spot, EVRAZ continues to look cheap, and its much lower leverage should continue to support high dividend payments, which should comfortably exceed 10% unless prices experience a significant correction. The two interim payments ytd add up to USD 0.53/share, a 7.4% yield at the current share price at the half-way stage of the year: 143% of ytd FCF (on our definition), compared to the 80% we forecast for 2018E. With working capital movements likely to reverse in 2H18E, boosting FCF, the outlook for EVRAZ’s dividend in 2H18E is very positive in our view.
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.
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