Page 147 - RusRPTAug21

Robust earnings ahead. Despite volumes being little changed HoH, we expect major top line support to come from 45% HoH higher steel and 35% increased coking coal prices (similar to other Russian steelmakers). As such, we forecast Evraz 1H21F revenues to rise 30% HoH to $6.18bn. This is to be only partly offset by an increase of some 20% HoH in cash costs of steel and coal, leading to EBITDA almost doubling HoH to $2.1bn (the highest since 2008). We see stronger steel prices in the US bringing the North American division’s EBITDA into positive territory. The surge in EBITDA is to be only partly translated to FCFE due to the working capital build-up, which we estimate at $190mn, and the planned capex increase. As such, we estimate 1H21F FCFE at $880mn. With net debt/EBITDA declining to below 1.0x and net debt of $3.1bn, far below $4.0bn long-term target, we think the company might announce dividends at or above FCFE for 1H21F (much more than the $300mn/a minimum threshold). As such, we estimate the 1H21F dividend at $0.70/share, an 8% semi-annual yield.
● Other
Rusal has reported a neutral 2Q21 trading update: sales volumes of own aluminium and aluminium prices matched our expectations.
Nevertheless, on 13 August, we expect the company to report record earnings, due to a 30% y/y rise in the aluminium price and the recovery of NorNickel’s profits. Additional deleveraging is to occur thanks to the NorNickel dividends and buy-back, with net debt declining to just $4bn, the lowest on record. While this creates the prerequisite for the discussion of dividends by the Board on 12 August, we think uncertainty remains over their distribution, given the tough debt repayment pipeline in 2022 onwards.
Operating data in line. Aluminium output of 935kt matched our expectations, although we note the 6% miss on bauxite due to the decline at Kindia. Total sales volumes were above our expectations, but this was due to resales, while the aluminium price of $2,445/t matched our estimates.
Record 1H21 earnings ahead. A combination of a higher aluminium price (+30% y/y) and a weaker RUB$is to drive the highest semi-annual EBITDA in the last 10 years, based on our numbers. We expect EBITDA to surge 533% y/y to $1.3bn, while thanks to additional support from the absence of non-cash provisions at NorNickel (hence, a higher attributable profit), recurring net income is to be the highest on record – $1.4bn. We expect a major cash inflow from Norilsk both from dividends and the buy-back, meaning $1.9bn in aggregate. This is to be only partly offset by $240mn purchase of a stake in RusHydro. As such, we expect a significant decline in net debt to $3.96bn.
Dividends might be discussed by the BoD on 12 August. According to an inquiry by Rusal's major shareholder, SUAL partners, Rusal is to review the payment of dividends for 1H21. We think this such a
147 RUSSIA Country Report August 2021 www.intellinews.com