Severstal

OCTOBER 31, 2014
RUSSIA > EQUITY RESEARCH > METALS & MINING
FLASH NOTE: 3Q14 RESULTS PREVIEW
Severstal
Natalia Sheveleva
[email protected]
RUS
Konstantin Asaturov
[email protected]
SIA
3Q14 IFRS preview: impressive profitability,
27% EBITDA margin
>
EQ
MET ALS & MIN ING
UIT
Y
TICKER
SVST LI
RES Closing price, $
10.5
EAR Target price, $
13.5
Upside
28%
Recommendation
OVERWEIGHT
CH
Source: Bloomberg, Gazprombank estimates
SELECTED STOCK DATA
Top line was supported by favorable steel markets for most
products and a greatly improved product mix
MCap, $ mln
8,821
Net debt, $ mln
3,718
As for the top line, steel product sales of the Russian Steel Division remained
relatively flat (+0.2% QoQ). However, the product mix improved significantly, as
the share of HVA products grew from 39.5% in 2Q14 to 43.6% in 3Q14
following the shift within the HVA category to relatively higher-priced positions.
As a result of better price dynamics (+3.2% QoQ for HRC) and the improved
product mix, we expect revenues at the Russian steel division to rise 4.8%
QoQ. Overall, we forecast revenues at $2,267 mln, up 3.6% QoQ compared to
2Q14 (excluding SNA).
EV, $ mln
12,560
52-week high, $
10.5
52-week low, $
6.1
Source: Bloomberg
SEVERSTAL
SEP 14
JUL 14
APR 14
MAY 14
MAR 14
JAN 14
FEB 14
Consolidated costs were aided by the weaker ruble (-3.7% QoQ on average).
We estimate EBITDA at $612 mln in 3Q14, up 20.9% QoQ excluding SNA. The
figure would have been even higher had we included SNA’s reported figures for
2Q14. We forecast the EBITDA margin at 27.0%, or 3.9 pps higher than the
similarly based EBITDA (excluding SNA) in 2Q14. To illustrate the margin
improvement thanks to the sale of SNA, the 3Q14 EBITDA margin is 8.4 pps
higher than the respective figure in the previous quarter including SNA (as
reported). The EBITDA margin of the mining division should remain flat QoQ
despite the fall in iron ore prices (-18.2% QoQ for pellets, -22.2% for iron ore
concentrate). This impressive result was achieved thanks to a 17.8% QoQ
increase in sales of coking coal concentrate from Vorkutaugol (and thus lower
cash costs per tonne), a lower share in sales of the high-cost PBS Coals, the
weaker ruble and efficiency gains. Net income should total $356 mln.
DEC 13
OCT 13
EBITDA margin aided by sale of SNA, weaker ruble and higher
sales volumes at Vorkutaugol alongside lower sales volumes of
PBS Coals, as well as efficiency gains
NOV 13
120%
115%
110%
105%
100%
95%
90%
85%
80%
75%
70%
65%
JUN 14
Severstal share price performance vs. MICEX
Index, past year
AUG 14
Severstal will release 3Q14 IFRS results on Wednesday, November 5, the
company’s first report following the recent sale of SNA, which will be
excluded from the figures. We forecast revenues, EBITDA and net
income in 3Q14 at $2,267 mln, $612 mln and $356 mln, respectively.
Thanks to the recent sale of the US steel assets alongside a better
market backdrop, improvements in the product mix of the Russian steel
division, and general improvement in the mining division, the group’s
EBITDA margin should reach an impressive 27.0%.
MICEX
Source: Bloomberg, Gazprombank estimates
Severstal 3Q14 IFRS preview, $ mln
Revenues
EBITDA
Net income
3Q14E
2Q14
EX-SNA
3Q14E/2Q14
EX-SNA
2Q14*
3Q14E/2Q14
1Q14*
3Q13*
3Q14E/3Q13
2,267
612
2,187
3.6%
3,253
-30.3%
3,007
3,192
-29.0%
506
20.9%
606
1.0%
534
543
12.7%
356
n/a
-
-662
-
-100
157
125.9%
EBITDA margin
27.0%
23.1%
3.9%
18.6%
8.4%
17.8%
17.0%
10.0%
Net margin
15.7%
-
-
-20.3%
-
-3.3%
4.9%
10.8%
* including SNA
Source: Company, Gazprombank estimates
Research Department
1
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