Page 154 - RusRPTMar21

$700-800mn. The BoD recommended a dividend for 4Q20 of R7.25 per share, for a total payment of $588mn, which is very solid (it implies a 3.5% yield, the highest among Russian steel producers for 4Q20) and was around 40% above our forecast. The record date will be announced later. NLMK was constructive on the steel price outlook in the US and EU, noting that lead times there are still above average. In China, however, it thinks the recent Covid outbreak and the Lunar New Year holiday could weigh on prices. In Russia, it believes that prices will be constrained until the start of the construction season in March-April. Marked-to-market, the stock is trading at a 2021E FCF yield of 20%. Assuming export steel prices $100/tonne below spot and a $50/tonne domestic premium in HRC (versus around zero now), the FCF yield would be 15%.
Evraz has reported strong FY20 earnings, as 2H20 FCFE beat expectations by 68% and dividends came 8% above estimates. The increase in coal output amid recovering long steel and coking coal prices offers the strongest earnings momentum among steels: the 2021F FCFE yield of 16% is the highest among Russian steel peers, we estimate. We reiterate our 12-month Target Price of GBp 700 and Buy recommendation. The strong 1H21 earnings outlook and potential coking coal spin-off are set to trigger an outperformance, in our view.
FCFE is 68% above our estimates. While EBITDA of $1.13bn in 2H20 matched our and the consensus expectations, the major surprise came from FCFE of $712mn (a 7.1% semi-annual yield), which exceeded our forecasts by almost 68%, thanks to the massive $303mn working capital release and lower $317mn capex. As a result, net working capital stood at just $199mn, 1% of 2020 revenues, which we think will be reversed in 2021. Additionally, capex came in at $647mn, below the reduced guidance of $800mn (and $900mn initial guidance). Capex guidance for 2021 stands at $1.0bn, which accounts for a catch-up on the unspent amounts in 2020.
Dividends slightly above our estimate. The company announced dividends of $436mn for 2H20, 8% above our estimates on higher FCFE, partly offset by the lower payout of FCFE (61%, but 106% of adjusted net income).
Coal production to grow 21% y/y in 2021F. The company has set an ambitious coal production target of 25mnt for 2021, up 21% y/y and also 2% above our expectations. We think this is a catch-up with the earlier plans (in 2018, it targeted 28.4mnt coal production for 2021), which were paused due to the weak coking coal market environment. Additionally, the company plans to increase the share of hard coking coal grades in the mix further.
Strong earnings outlook and superior yield. As the company has
154 RUSSIA Country Report March 2021 www.intellinews.com