Page 119 - RusRPTDec18

announcing a total of $360mn for 3Q18 (4.4% quarterly yield), which represents a payout of 106% of FCFE. This means a 12-m average payout ratio of 107% and given that the net cash position remains at a record high of $311mn, a 100% payout might be the case for 4Q18 onwards. Capex guidance raised. The company now sees 2018 capex at $850mn, higher than the initial $800mn guidance, but in line with the initial signs of overrun in 2Q18. This suggests that 2018 capex might be up 37% y/y, while management sees it being maintained around $800-850mn in 2019 and 2020 (above our expectations of $730-760mn) as the company brings forward its investment on the new coke battery. Seasonal softening of financials in 4Q18. The outlook for 4Q18 is a seasonal downturn in volumes. However, the volumes, which management expects to deliver are higher y/y than we expected. With a likely price softening Q/q, a 20% Q/q rise in capex and seasonal working capital build-up, working capital might dive Q/q to $230mn, on our numbers (a 2.9% yield).
Russia's phosphate fertiliser major Phosagro reported 5% quarter-on- quarter and 18% year-on-year revenue growth to $957mn in the third quarter of 2018, supported by strong fertiliser prices beating consensus expectations for top line by 2%. In the first quarter Phosagro missed expectations, but in the second quarter company's Ebitda jumped 31% q/q to RUB18.7bn beating consensus expectations by 7%. Strong Ebitda growth continued in the third quarter with 57% y/y jump to $357mn, Ebitda margin gaining 9pp y/y and 4pp q/q to 37%. Sberbank CIB on November 22 attributed the gain in earnings to higher revenues, gains from the investment program and a weaker ruble. While adjusted net income came in at RUB12.9bn, and the company said it will pay RUB9.3bn in dividend or 72%. "Phosagro guided that it will stick to its dividend policy of paying out 30-50% of adjusted net income, but will consider higher payouts depending on market conditions and the company's performance," Sberbank commented. Looking into the fourth quarter, Sberbank CIB believes that even though it usually comes in weaker than 3Q, the strong pricing environment could support Phosagro's revenues and earnings. In March 2018 bne IntelliNews interviewed the head of Phosagro Andrei Guryev. The company has been on a tear, and is a favourite of both portfolio and bond investors. It is cash rich, has low debt and grows at a steady 10% a year irrespective of the shockwaves that have bombarded Russia in recent years.
Russian steel major Severstal of tycoon Alexei Mordashov unveiled an ambitious investment programme during its Investor Day 2018 presentation in London, planning to spend $2.5bn in capex on 14 projects in 2019-2023 to secure an estimated Ebitda boost of $0.8bn. In October another Russian metals and mining major Evraz said it would boost its capex 1.5-fold until 2022, but investors and analysts did not welcome the new strategy doubting the economic rationale behind expansion on oversaturated steel market on its downward cycle. Severstal too is "overestimating its investment needs in 2019- 2023 and is likely to underinvest already in 2018" with $0.4bn spent in January-September out of total $0.8bn planned for this year, BCS Global Markets commented on November 7. BCS sees investment in additional steel capacities as risky as steel prices have already started to decline on the background of excess supply. Severstal now plans to boost capex by 75% y/y in 2019-2023 to $1.4bn and spend $0.75bn in 2023. The company maintained its dividend policy paying out 100% of free cash flow, but that might change next year as $0.6bn might be reserved from the FCF for investment. VTB Capital on November 8 argued that dividend payout ratio could remain intact. "Assuming the announced capex plans, no Ebitda gains until 2023 and a still
119 RUSSIA Country Report December 2018 www.intellinews.com