Page 144 - RusRPTAug21

negative impact from export tariffs in 3Q21. Overall, in 2H21 we expect the EBITDA loss from the initiative to total USD 550mn.
Buy reiterated. We now expect steel prices to drop to the mid-cycle average gradually over 2022F and hence increase our 2022F HRC FOB Black Sea price assumption to USD 700/t, which boosts our 2022F earnings (Figure 2). We roll over Target EV/EBITDA to 2022F, leaving our 12-month Target Price of USD 48/DR unchanged. We note that, even under such a FOB Black Sea price (-25% from spot), we are 84% above the 2022 consensus. With our new 12-mo fwd steel price forecast, we expect NLMK to offer an attractive 29% 12-mo fwd dividend yield.
Novolipetsk Mining Kombinat (NLMK) released 2Q21 Operating Update. Steel output rose 5% q/q and 19% y/y to 4.5mt. In turn, net steel sales grew 11% q/q to 4.3mt, just slightly down 1% y/y. The results were strong on seasonality, but close to our estimates on steel sales volumes. Thus, with steel prices skyrocketing in the quarter, we expect strong 2Q21 IFRS results.
· Steel output rose 5% q/q and 19% y/y to 4.5mt, due to equipment ramp-up after the overhaul
· Net steel sales grew 11% q/q, but decreased slightly by 1% y/y to 4.3mt
· Russian assets sales rose 16% q/q and 8% y/y to 4.3mt, due to solid shipments of slabs and pig iron to export markets, as well as higher shipments of long products to Russian, Chinese and European markets
· Foreign asset sales also rose 10% q/q and 47% y/y to 664kt, due to an increase in the supply of NLMK slabs and the corresponding recovery of rolled steel production utilization rates in a strong market
· Iron ore sales also showed strong dynamics – up 8% q/q and 6% y/y to 5.16mt, following the increase in production.
Severstal reported a strong set of 2Q21 results July 18 that were largely driven by strong steel prices.
The company allocated 100% of its 2Q21 FCF to dividends, recommending a 2Q21 DPS of RUB84.45/share (5% dividend yield). Despite the strong pricing and earnings in the sector, the market is focused on steel prices in 2H21 and the new Russian export tax. Severstal reported a very strong set of 2Q21 results today. The company reported revenue growth of 33% q/q (+57% y/y) thanks to stable volumes of steel sales (+2% q/q) and elevated steel prices (+30% q/q). Vertical integration helped the company to capitalize on higher iron ore prices and to expand its margins, delivering an EBITDA growth of 42% q/q and helping the EBITDA margin reach 56% vs. 52% in 1Q21. SVST generated a 2Q21 FCF of $936mn (FCF yield of 5%), and the company recommended paying out 100% of 2Q21 FCF in dividends due to its low level of financial leverage (end-1H21 ND/EBITDA of 0.4x). The company’s BoD recommended paying out a 2Q21 DPS of RUB84.45/share ($1.14/GDR, +88% q/q), implying a 5% dividend yield (COB 15 July). The reported results were 3% below our
144 RUSSIA Country Report August 2021 www.intellinews.com