WOOD Flash – Severstal: 1Q18 results in line with the consensus – neutral, but positive news on the dividend

Severstal reported its 1Q18 financial results this morning (17 April), which were almost exactly in line with the consensus. The large dividend announced last night implies a 4.4% quarterly yield, so we expect this to be taken positively by the market, although the results were broadly neutral. Severstal continues to be a high dividend payer, and recent concerns over further Russian sanctions do not appear to be limiting the company’s appetite for paying dividends. With the weaker rouble and the recent sell-off in the share price, Severstal’s dividend yields are looking increasingly appealing. We believe that higher capex and tax this year are likely to limit the FCF later in the year but, with Severstal formalising its dividend policy to pay out above 100% of its FCF if its net debt/EBITDA is below 0.5x, this should be supportive of dividend payments in the near term, in our view. However, further speculation over future Russian sanctions have clearly elevated the risk premium attached to Russian stocks, so investors will need to decide whether annualised yields around c.15% at the current price levels justify the greater risk.