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peers, we note that the recent rapid increase in seaborne iron ore prices negatively affects the company's profitability in the short and medium term, as it has the lowest level of vertical integration among Russian steelmakers. We leave unchanged our 12-month Target Price of $12/GDR, which implies a 49% ETR. Buy reiterated,” Dmitry Glushakov of VTBC said in a note. The company’s EBITDA was down 20% q/q on falling prices. The company reported a 6% decline in revenue as the average realised price per ton of its Russian Steels segment fell 5% q/q. As a result, despite total cash costs remaining relatively flat, MMK saw a 20% q/q decline in EBITDA, as expected. In 1Q19, this might fall further, as in January, Russian domestic flat steel prices were 2% below their 4Q18 average, while raw materials were flat or slightly higher. However, the company still pays 100% free cash flow (FCF) as dividends, or a 3.1% dividend yield. “The company has not yet announced its 4Q18 dividends, though we expect the recommendation from the board of directors by the end of the week. We maintain to our estimate of a 100% FCF payout, which yields dividend payments of $239mn for the quarter – USc 29/GDR, a 3.1% yield,” Glushakov added.
Leading Russian steel mill Severstal is contemplating the sale of its Balakovo EAF mill, reports Bloomberg. The company has not confirmed the news, but said that no final decision has been taken. “Such a move might be sensible, we believe. The mill has no captive scrap capacity, and the rebar- scrap margin, at $120/t, is 30% below the 2012-2018 average. Additionally, the mill is not being fully utilised, with the 2018 level at 88% (of 1mnt capacity). However, given thin margins, we believe the company is unlikely to be able to sell it for the entire $700mn it invested in mill construction. In fact, our view would be that any sale consideration would be as little as a half or a third of that amount. We see the weak performance of Severstal’s long division has having already been largely priced in by the market, and thus do not expected any negative price reaction to the news of the potential sale,” Dmitry Glushakov of VTB Capital (VTBC) said in a note.
● Other
Russia’s diamond mining monopolist and investor’s darling Alrosa reports rough diamond sales were down 44% y/y in January to $278mn, the company said on February 12. Although the decline was steep, a large part of the fall was due to a high base effect from a year earlier. Rival De Beers' also saw sales down by 24% y/y in the same period, also due to the base effect. In terms of historical sales, Alrosa’s January result was exactly in with the historical average between 2015-2017. The management comments on market the market conditions at both firms were similar, saying that demand in January was lower than usual, especially given that December sales by both companies were stronger than usual. The outlook for Alrosa February sales y/y growth is currently downbeat as well, according to analysts at VTB Capital (VTBC). “We think focus remains on March sales, which historically (2015- 2017) showed 1.5x seasonal pick-up compared with average level for January- February, and hence absence or presence of this pick-up might be an indicator of rough diamond market conditions,” Dmitry Glushakov with VTBC said in a note.
9.2.13 Other sector corporate news
AFK Sistema is considering the possibility of selling up to 20% of private medical services company Medsi shares, said Artem Sirazutdinov,
127 RUSSIA Country Report March 2019 www.intellinews.com