WOOD Flash – KAZ Minerals: 2H17 and 2017 financial results - better than expected EBITDA on lower costs, guidance slightly more conservative than we expected

The results were better than expected on EBITDA, beating both our estimate and consensus due mainly to lower costs than expected, especially at Aktogay. Net debt was also 13% below our estimate, due to some deferred capex spending and a USD 232m VAT rebate, with KAZ now down to only 2x ND/EBITDA. Guidance for 2018E production was broadly in line with our current model, excluding the cut in guidance at Bozshakol, which had been announced in the trading update, and therefore should come as no surprise. By-product production guidance was slightly below our forecasts and costs were slightly above, but KAZ is typically conservative in its initial guidance. Guidance was raised last year after exceeding its targets, so we believe there is upside risk to these forecasts, and they should not be taken negatively by the market. Overall, we see these numbers as neutral.
We believe that a company with 40% copper production growth between 2017 and 2022E, fully funded from its own cash flow, with further FCF for deleveraging, should trade on a higher multiple than the current c.5.5x 2018E EV/EBITDA on our last published forecasts. We intend to revise these forecasts after the analyst meeting today but, following the recent pull-back in the share price, we still see value in KAZ. The recent news that it might consider buying the Baimskaya asset in Russia could fundamentally change the equity story, however. We expect to hear more details about this asset and KAZ’s plans for capital allocation between growth and dividends at the analyst meeting today. This should have more impact on the share price than the uneventful results, in our view.