vk.com/id446425943
Peer comparison per calendar year
Figure 61: Steel producers
|
Calendar year |
2013 |
2014 |
2015 |
2016 |
2017 |
2018E |
|
|
EBITDA margin |
5% |
4% |
-3% |
1% |
-1% |
8% |
|
|
Capex/EBITDA |
86% |
260% |
30% |
-518% |
109% |
36% |
|
SA |
RoCE |
1% |
0% |
-10% |
-5% |
-8% |
23% |
|
Net debt/EBITDA |
0.3x |
0.7x |
-3.9x |
2.5x |
-10.7x |
0.1x |
||
ArcelorMittal |
Earnings per share, ZAR |
0.56 |
-0.57 |
-13.38 |
-2.44 |
-2.05 |
0.83 |
|
|
||||||||
|
Earnings growth |
+143% |
-202% |
-2247% |
+82% |
+16% |
+140% |
|
|
EV/EBITDA |
7.9x |
12.2x |
-11.4x |
50.9x |
-36.9x |
1.2x |
|
|
P/E multiple |
20.0x |
20.0x |
20.0x |
20.0x |
20.0x |
4.7x |
|
|
FCF yield |
-5.4% |
1.0% |
-10.5% |
-31.6% |
-17.2% |
96.6% |
|
|
Dividend per share, ZAR |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
|
|
Dividend yield |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
|
|
EBITDA margin |
13% |
18% |
18% |
20% |
24% |
33% |
|
|
Capex/EBITDA |
48% |
26% |
27% |
25% |
23% |
16% |
|
|
RoCE |
6% |
15% |
15% |
18% |
35% |
54% |
|
|
Net debt/EBITDA |
3.3x |
2.2x |
3.2x |
3.1x |
1.5x |
0.9x |
|
Evraz |
Earnings per share, $ |
-0.43 |
-0.75 |
-0.44 |
-0.15 |
0.53 |
1.65 |
|
Earnings growth |
-34% |
-74% |
+41% |
+66% |
+453% |
+212% |
||
|
||||||||
|
EV/EBITDA |
5.6x |
3.4x |
5.2x |
4.9x |
3.4x |
2.9x |
|
|
P/E multiple |
20.0x |
20.0x |
20.0x |
20.0x |
6.1x |
3.3x |
|
|
FCF yield |
8.1% |
16.0% |
6.6% |
12.5% |
18.7% |
16.7% |
|
|
Dividend per share, $ |
0.06 |
0.00 |
0.00 |
0.00 |
0.60 |
1.16 |
|
|
||||||||
|
Dividend yield |
2.4% |
0.0% |
0.0% |
0.0% |
18.5% |
21.5% |
|
|
EBITDA margin |
15% |
20% |
28% |
34% |
27% |
30% |
|
|
Capex/EBITDA |
51% |
31% |
21% |
24% |
33% |
34% |
|
|
RoCE |
2% |
11% |
21% |
30% |
26% |
32% |
|
|
Net debt/EBITDA |
2.5x |
1.4x |
0.9x |
0.1x |
0.0x |
-0.2x |
|
MMK |
Earnings per share, $/GDR |
2.83 |
-0.05 |
0.49 |
1.29 |
1.38 |
1.65 |
|
Earnings growth |
+2625% |
-102% |
+1050% |
+161% |
+7% |
+20% |
||
|
||||||||
|
EV/EBITDA |
4.9x |
2.8x |
2.8x |
2.4x |
3.6x |
2.9x |
|
|
P/E multiple |
1.2x |
20.0x |
7.4x |
4.0x |
6.2x |
5.4x |
|
|
FCF yield |
15.8% |
24.5% |
21.8% |
33.0% |
9.5% |
16.4% |
|
|
Dividend per share, $/GDR |
0.00 |
0.21 |
0.20 |
0.21 |
0.72 |
1.32 |
|
|
Dividend yield |
0.0% |
8.2% |
5.6% |
4.1% |
8.5% |
14.9% |
|
|
EBITDA margin |
14% |
23% |
24% |
25% |
26% |
31% |
|
|
Capex/EBITDA |
50% |
23% |
31% |
29% |
23% |
18% |
|
|
RoCE |
5% |
15% |
19% |
21% |
26% |
39% |
|
|
Net debt/EBITDA |
2.1x |
0.7x |
0.6x |
0.4x |
0.3x |
0.3x |
|
NLMK |
Earnings per share, $/GDR |
0.37 |
1.64 |
1.59 |
1.82 |
2.43 |
3.90 |
|
Earnings growth |
-63% |
+338% |
-3% |
+14% |
+34% |
+60% |
||
|
||||||||
|
EV/EBITDA |
8.8x |
4.1x |
4.4x |
4.5x |
5.0x |
4.1x |
|
|
P/E multiple |
20.0x |
8.2x |
7.8x |
7.3x |
8.6x |
6.1x |
|
|
FCF yield |
4.9% |
18.8% |
11.5% |
11.8% |
8.7% |
12.9% |
|
|
Dividend per share, $/GDR |
0.19 |
0.51 |
1.08 |
1.53 |
2.38 |
3.60 |
|
|
Dividend yield |
1.1% |
3.8% |
8.7% |
11.6% |
11.5% |
15.0% |
|
|
EBITDA margin |
24% |
27% |
33% |
33% |
33% |
37% |
|
|
Capex/EBITDA |
60% |
35% |
21% |
29% |
23% |
25% |
|
|
RoCE |
9% |
20% |
46% |
46% |
53% |
62% |
|
Severstal |
Net debt/EBITDA |
2.0x |
0.7x |
0.4x |
0.4x |
0.4x |
0.2x |
|
Earnings per share, $/GDR |
0.97 |
1.58 |
1.69 |
1.56 |
1.91 |
2.57 |
||
|
||||||||
|
Earnings growth |
+18% |
+63% |
+7% |
-7% |
+22% |
+35% |
|
|
EV/EBITDA |
6.2x |
3.9x |
4.6x |
5.3x |
5.0x |
4.0x |
|
|
P/E multiple |
9.4x |
5.6x |
6.4x |
7.3x |
7.6x |
5.8x |
|
|
FCF yield |
5.9% |
40.5% |
16.5% |
9.3% |
11.2% |
15.9% |
|
|
Dividend per share, $/GDR |
0.26 |
1.94 |
0.96 |
1.24 |
1.87 |
2.68 |
|
|
Dividend yield |
2.8% |
21.9% |
8.9% |
10.8% |
12.9% |
18.1% |
|
Sector average |
- Earnings growth |
+538% |
+5% |
-230% |
+63% |
+106% |
+94% |
|
- RoCE |
5% |
12% |
18% |
22% |
26% |
42% |
||
- P/E multiple |
14.1x |
14.8x |
12.3x |
11.7x |
9.7x |
5.0x |
||
|
- Net debt/EBITDA |
206% |
114% |
24% |
132% |
-170% |
25% |
|
|
- Dividend yield |
1.3% |
6.8% |
4.6% |
5.3% |
10.3% |
14.0% |
Note: Priced at market close on 30 November 2018
P/E multiples are set at a maximum of 20x when actual is greater than 20 or negative.
Renaissance Capital
3 December 2018
Steel
2019E |
2020E |
2021E |
2022E |
LT average |
5% |
6% |
7% |
7% |
3% |
56% |
72% |
62% |
61% |
126% |
14% |
13% |
16% |
15% |
-1% |
0.3x |
0.3x |
0.1x |
-0.1x |
-1.5x |
0.54 |
0.65 |
1.14 |
1.26 |
|
-35% |
+21% |
+75% |
+11% |
|
2.1x |
2.1x |
1.6x |
1.3x |
10.3x |
7.2x |
6.0x |
3.4x |
3.1x |
20.0x |
1.1% |
10.1% |
14.9% |
16.7% |
-7.1% |
0.00 |
0.00 |
0.00 |
0.00 |
0.23 |
0.0% |
0.0% |
0.0% |
0.0% |
0.3% |
32% |
26% |
24% |
24% |
17% |
23% |
38% |
40% |
39% |
36% |
43% |
27% |
23% |
23% |
13% |
1.0x |
1.3x |
1.4x |
1.2x |
3.1x |
1.37 |
0.83 |
0.72 |
0.82 |
|
-17% |
-40% |
-13% |
+14% |
|
3.5x |
4.7x |
5.0x |
4.7x |
4.6x |
4.3x |
7.2x |
8.3x |
7.2x |
11.9x |
17.0% |
10.0% |
9.4% |
10.0% |
14.6% |
1.18 |
0.52 |
0.48 |
0.50 |
0.17 |
20.0% |
8.7% |
8.1% |
8.5% |
2.6% |
25% |
24% |
23% |
23% |
22% |
45% |
48% |
46% |
46% |
61% |
23% |
20% |
18% |
16% |
12% |
0.0x |
0.0x |
-0.1x |
0.0x |
1.5x |
1.21 |
1.07 |
0.95 |
0.99 |
|
-27% |
-11% |
-12% |
+4% |
|
4.0x |
4.3x |
4.5x |
4.3x |
5.1x |
7.4x |
8.3x |
9.4x |
9.0x |
13.2x |
12.2% |
9.3% |
9.8% |
9.6% |
9.8% |
1.03 |
0.79 |
0.82 |
0.81 |
0.20 |
11.6% |
8.9% |
9.2% |
9.1% |
3.5% |
27% |
25% |
25% |
25% |
22% |
22% |
26% |
29% |
29% |
52% |
33% |
27% |
26% |
26% |
15% |
0.4x |
0.4x |
0.5x |
0.5x |
1.0x |
3.19 |
2.55 |
2.35 |
2.38 |
|
-18% |
-20% |
-8% |
+1% |
|
5.0x |
5.8x |
5.8x |
5.8x |
7.2x |
7.5x |
9.4x |
10.2x |
10.1x |
13.6x |
12.9% |
10.8% |
9.6% |
9.5% |
5.3% |
3.27 |
2.67 |
2.43 |
2.44 |
0.80 |
13.6% |
11.1% |
10.1% |
10.2% |
4.6% |
33% |
31% |
31% |
31% |
25% |
53% |
42% |
33% |
27% |
39% |
47% |
36% |
33% |
32% |
26% |
0.6x |
0.8x |
1.0x |
1.0x |
1.2x |
2.08 |
1.79 |
1.79 |
1.91 |
|
-19% |
-14% |
-0% |
+7% |
|
5.2x |
6.0x |
6.0x |
5.7x |
5.6x |
7.2x |
8.4x |
8.4x |
7.9x |
11.1x |
7.1% |
7.6% |
8.6% |
9.9% |
10.3% |
1.97 |
1.79 |
1.79 |
1.91 |
0.81 |
13.1% |
11.9% |
11.9% |
12.7% |
7.2% |
-23% |
-13% |
+8% |
+7% |
|
32% |
25% |
23% |
23% |
|
44% |
57% |
56% |
51% |
|
6.7x |
7.8x |
7.9x |
7.4x |
|
11.8% |
8.2% |
7.9% |
8.1% |
|
Source: Company data, Thomson Reuters Datastream, Renaissance Capital estimates
33
vk.com/id446425943
Renaissance Capital
3 December 2018
Steel
Downside risks to our positive investment stance
Our earnings forecasts and valuations for the steel companies under our coverage are based on the assumptions detailed in this report. However, our forecasts are subject to the following risks:
1.China consumes 50%-plus of many commodities, with around 20% of the global population. Rebalancing its economy from a fixed asset investment to a consumerdriven economy will make it significantly less commodity-intensive, in our view.
2.US sanctions on Russian steel producers or the Russian economy
3.The US imposition of 25% steel tariffs could result in trade wars, leaving limited options for Russian producers to ship their export volumes
4.Increased use of recycling could result in excess BOF capacity
5.Cost and availability of major input costs. Some steel producers under our coverage are not fully integrated in terms of their raw material requirements, and are thus exposed to both supply and price risks around raw materials.
6.Increased government regulation, including possible requirements for social infrastructure investment, which may not attract financial returns.
7.Increased rates of substitution away from steel usage in the auto manufacturing industry due to increasing use of aluminium and other metals.
8.Infrastructure constraints and shortages of skills, electricity and water in key regions could affect production and costs more than we forecast.
9.Increased competition from imports, although we believe that imposed tariffs and government stipulations to use domestic steel may provide relief.
10.Stronger-than-forecast producer currencies
11.Lower-than-forecast steel prices
12.Higher-than-forecast mining inflation, especially if recovering demand puts pressure on scarce resources and skills.
13.Operational stoppages due to strike action and above-inflation wage increases for unionised employees could adversely affect costs.
Potential upside risks and catalysts for outperformance
Short term
1.Weaker producer currencies
2.Increased government intervention within the industry
3.M&A: valuations below replacement cost, coupled with low interest rates, could incentivise M&A. This could: 1) boost target companies’ share prices; and
2) consolidate rather than increase commodity supply.
4.Prudent capital allocation and higher dividends
5.Supply-side discipline to bring capacity in line with demand
34
vk.com/id446425943
Renaissance Capital
3 December 2018
Steel
Medium term
1.Higher-cost plant closures
2.Increased fiscal stimulus through the SA and Russian governments increasing their investment in infrastructure. We believe the following will be macro drivers for Russian steel demand: a) modernisation of public infrastructure;
b)government construction programmes; c) residential construction growth.
3.Increased environmental pressure to remove environmentally unfriendly steel mills globally
4.Continued low interest rates, which could: a) stimulate industrial demand; and
b)increase investment demand for commodities more than we expect.
Long term
1.A stronger global macro environment, leading to higher steel consumption.
2.Increasing Chinese demand through the BRI, which we estimate to account for 150mnt of steel demand.
3.Sector consolidation
35