WOOD Flash – NLMK: CMD highlights – capex up, USD 1.25bn of targeted EBITDA gains & more generous dividend policy

Today (4 March), NLMK announced its new “Strategy 2022” at its Capital Markets Day (CMD), the long-awaited follow-up to its 2017 version, which is now complete. The big news is the change in dividend policy, which will maintain high dividend payments by paying out more than 100% of the FCF, while NLMK goes through a high capex phase over the next five years, following a similar model to that of Severstal. This investment should generate USD 1.25bn p.a. of additional EBITDA, in the company’s view, by 2023E. While the higher capex will limit the FCF, management has been flagging higher capex during recent conference calls, suggesting that capex would be roughly 50% higher than the past five years (c.USD 0.6bn p.a.), so the new guidance of an average of USD 0.9bn p.a. is close to that guidance and should have been expected by the market, in our view. The targeted EBITDA gains are similar to the USD 1bn targeted in the 2017 strategy, if we strip out the projects carried over from the last strategy (mainly the extra 1mtpa of slabs through debottlenecking), so these targeted gains are also in line with what we would have expected. Much of this can be included in our model (only the extra slab volumes are modelled currently), although some of the sales targets appear optimistic and seem to rely on the Russian market growing more than it has in the past few years. Overall, we expect a neutral market reaction.