Page 4 - bne_newspaper_June_07_2019

Top Stories
June 7, 2019 www.intellinews.com I Page 4
spike in the company’s shares was an “insider trading deal” by well-placed government officials hoping to cash in on the further jump in shares that would inevitably follow Miller’s sacking. Gov- ernment officials buying stocks shortly ahead of major announcements like big rating changes is common in Russia as officials in the know lever- age their inside knowledge for profit.
However, rumours aside, the increase in dividend is enough to justify the increase in the share price. Investors have long complained that “in- vesting into Gazprom shares is like buying a bond as the company pays out RUB8 per share come rain or shine,” Kirill Tachennikov, the oil and gas analyst with BCS Global Markets, told bne Intel- liNews in a recent interview.
What investors really want to see is a change in dividend policy that means the company shares more of the billions of dollars a year it makes with investors.
Gazprom reported a 24% year-on-year gain in net income under IFRS to $8bn in 1Q19, despite rev- enues and Ebitda declining by 8% y/y and 13% y/y, respectively. Its Ebitda beat analysts' forecasts, mostly due to lower gas purchase costs and a sizable $2.8bn foreign exchange gain, VTB Capital commented on May 31. Gazprom has been selling record amounts of gas to Europe and with three new pipelines about to come onstream – Power of Siberia, Turkish Stream and Nord Stream 2 – its sales will only go up, while its capex should shrink considerably.
Capitalisation of Russia's NLMK overtakes steel major ArcelorMittal
all the sectors that make up the index, suggest- ing this year’s rally is broadening.
NLMK is one of the most modern smelters in Russia, its construction having been completed shortly before the fall of the Soviet Union. NLMK is also one of the largest steel companies in
the country and produced 17mn tonnes in 2018, $12bn in revenues, $3.6bn in Ebitda and $2.2bn in net profit. At the same time the company’s debts are a negligible $891mn of net debt, or 0.25x Ebitda as of end of 2018.
One of the side affects of US sanctions on Russia is it has caused a massive deleveraging of the leading companies which has actually improved their finan- cial health and made them cash-rich. At the same time the dramatic devaluation of the ruble following the collapse of oil prices at the end of 2014 has also worked to the raw materials producers’ advantage as their costs are ruble denominated but their rev- enues are largely denominated in dollars, so devalu- ation has massively improved their profitability.
ArcelorMittal, with assets in Europe, Brazil, In- dia, Southeast Asia and North America, produced 92.5mn tonnes of steel in 2018, generating an Ebitda of $10.3bn, net profit of $5.1bn, and carry- ing $10.2bn of net debt.
Analysts surveyed by Vedomosti believe that mar- gins and other metrics of Russian steel makers and NLMK in particular beat those of their foreign peers. NLMK's Ebitda margin of 30% is double that of ArcelorMittal, and a much lower leverage.
Russian companies are being shielded from steel price volatility by the low cost base in Russia and access to high-quality iron ore. Foreign steelmak- ers are also disproportionately exposed to the ongoing trade war between the US and China.
NMLK also has one of the most generous divi- dend policies in the metals and mining segment, paying 100% of free cash flow if the net debt is smaller than or to equal Ebitda, 50% otherwise. The company's FCF in 2018 was $2bn.