Page 135 - RusRPTFeb21
P. 135
expected cash cost growth.
The impact of higher iron ore and scrap prices was partially offset by $23mn in savings from the company's optimization program, so the cash cost of slab was up just 8.4% q/q to $285/tonne.
As we anticipated, FCF was weakish - at $125mn, for a 1.6% yield - owing to a seasonal 44% q/q jump in capex (to $229mn in 4Q20, bringing the full-year figure to $694mn, in line with our expectations) and a $50mn working capital buildup. The BoD recommended a dividend for 4Q20 of R0.945/share, which translates into a total payment for the quarter of $139mn (and a 1.8% yield) at the current $/RUBrate.
MMK has a positive outlook on the steel market in 1Q20, expecting the ongoing correction in Russian flat steel export prices to not get any further than $20/tonne below spot (prices are already down $33/tonne from the $753/tonne peak in January). The company believes that steel export prices might pick up again after the Chinese New Year. We note that this year China may see unusually high business activity during the Lunar New Year, as many migrant workers may stay in the cities they work in due to Covid-related travel restrictions. This would be supportive for Chinese and global steel prices.
MMK expects domestic steel demand to grow 3% y/y in 2021, which would nearly bring demand back to the levels of 2019, which was a very strong year. We expect an average domestic steel price premium over the export netback of around $50/tonne in 2021 thanks to good domestic demand.
Capex guidance for 2021 was reiterated at $1bn (assuming $/RUB72). The significant increase versus 2020 is mainly attributable to $160mn in spending on a new coke battery that was pushed from last year to this year.
At spot commodity prices and the current $/RUB, the stock is trading at an undemanding 18% dividend yield for the next 12 months. Assuming an average export price for 2021 that is $120/tonne (or 17%) below spot, an average $50/tonne domestic premium and iron ore CFR China at $130/tonne, the dividend yield would be 14%.
Severstal released 4Q20 IFRS on February 4. Revenue reached $1.72bn down 8% q/q and 6% y/y (-3% vs BCSe and 1% ahead of consensus). EBITDA was only 1% ahead of our estimates and 3% above consensus at $710mn (up 8% q/q and 18% y/y), driven by cost reduction. Adjusted net income fell 17% q/q while rising 21% y/y to $397mn – 12% below our estimates mainly due to
135 RUSSIA Country Report February 2021 www.intellinews.com
