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Severstal - BUY
Figure 66: Severstal, $mn (unless otherwise noted)
Severstal |
SVSTq.L / CHMF.MM |
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|
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Market capitalisation, $mn: |
|
12,531 |
|
|
|
Enterprise value, $mn: |
|
13,379 |
|
|
|
Dec-YE |
|
|
2018E |
2019E |
2020E |
2016 |
2017 |
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Income statement |
|
|
|
|
|
Revenue |
5,916 |
7,848 |
8,602 |
7,912 |
7,751 |
Underlying EBITDA |
1,911 |
2,577 |
3,141 |
2,621 |
2,393 |
Underlying EBIT |
1,569 |
2,174 |
2,745 |
2,233 |
1,993 |
Other items |
294 |
-266 |
-137 |
0 |
0 |
Equity accounted income |
14 |
10 |
12 |
7 |
6 |
Net interest |
-160 |
-154 |
-108 |
-108 |
-167 |
Taxation |
-97 |
-409 |
-490 |
-426 |
-366 |
Minority interest |
1 |
1 |
0 |
0 |
0 |
To owners of the parent |
1,621 |
1,356 |
2,022 |
1,705 |
1,466 |
Underlying earnings |
1,268 |
1,547 |
2,101 |
1,705 |
1,466 |
Underlying EPS, USc |
156 |
191 |
257 |
208 |
179 |
Thomson Reuters consensus EPS, USc |
|
|
251 |
206 |
189 |
DPS declared, USc |
124 |
187 |
268 |
197 |
179 |
Thomson Reuters consensus DPS, USc |
|
|
206 |
179 |
166 |
Underlying EBIT, $mn |
|
|
|
|
|
Resources - EBIT |
282 |
678 |
782 |
720 |
633 |
EBIT margin - resources |
24% |
39% |
43% |
41% |
36% |
Russian steel - EBIT |
1,315 |
1,493 |
2,012 |
1,534 |
1,379 |
EBIT margin - Russian steel |
24% |
21% |
26% |
21% |
20% |
Other - EBIT |
-28 |
3 |
-49 |
-21 |
-20 |
Underlying EBIT |
1,569 |
2,174 |
2,745 |
2,233 |
1,993 |
EBIT margin |
27% |
28% |
32% |
28% |
26% |
Income statement ratios |
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|
|
|
|
EBITDA margin |
32% |
33% |
37% |
33% |
31% |
EBIT margin |
27% |
28% |
32% |
28% |
26% |
EPS growth |
167% |
-17% |
48% |
-16% |
-14% |
Dividend payout ratio |
79% |
98% |
104% |
95% |
100% |
Input assumptions |
58 |
71 |
66 |
65 |
64 |
Iron ore fines (62% Fe, CIF China), $/t |
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Hard coking coal, $/t |
144 |
188 |
200 |
190 |
167 |
Hot rolled coil - CIS, $/t |
382 |
502 |
569 |
514 |
492 |
Cold rolled coil - CIS, $/t |
434 |
559 |
636 |
619 |
600 |
RUB/$ |
67 |
58 |
62 |
65 |
64 |
Steel sales realisations, $/t |
506 |
655 |
701 |
644 |
624 |
EBITDA per tonne, $/t |
178 |
235 |
280 |
235 |
214 |
Capex/tonne, $ |
51.3 |
53.9 |
68.5 |
125.4 |
89.5 |
FCF/tonne, $ |
1.2 |
1.8 |
2.5 |
1.2 |
1.3 |
Utilisation rate |
86% |
87% |
90% |
90% |
90% |
Sales volumes, kt |
|
|
|
|
|
Coking coal |
827 |
200 |
308 |
152 |
495 |
Steam coal |
2,030 |
1,583 |
1,209 |
1,088 |
1,088 |
Total coal |
2,857 |
1,783 |
1,517 |
1,240 |
1,583 |
Iron ore pellets |
6,028 |
6,514 |
6,363 |
6,914 |
7,115 |
Iron ore concentrate |
120 |
131 |
768 |
723 |
1,213 |
Total iron ore |
6,149 |
6,645 |
7,131 |
7,636 |
8,328 |
Semi-finished products |
724 |
519 |
679 |
566 |
566 |
Rolled products |
8,120 |
8,579 |
8,733 |
8,681 |
8,681 |
Downstream products |
1,871 |
1,862 |
1,818 |
1,921 |
1,921 |
Total steel sales |
10,715 |
10,959 |
11,230 |
11,167 |
11,167 |
Contribution to FY18E underlying EBITDA
Resources |
Russian steel |
|
71% |
||
29% |
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*Gearing defined as net debt/(net debt +equity)
**Working capital days is defined as (working capital/revenue)*365
Renaissance Capital
3 December 2018
Steel
|
Target price, $: |
|
|
18.9 |
||
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Last price, $: |
|
|
15.0 |
||
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Potential 12-month return: |
|
39.4% |
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Dec-YE |
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|
|
2018E |
2019E |
2020E |
2016 |
2017 |
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Balance sheet |
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|
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|
|
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Net operating assets |
3,656 |
4,237 |
|
4,055 |
4,868 |
5,373 |
Investments |
250 |
229 |
|
28 |
35 |
40 |
Equity |
3,032 |
3,389 |
|
3,524 |
3,418 |
3,391 |
Minority interest - BS |
15 |
15 |
|
14 |
14 |
14 |
Net debt (cash) |
859 |
1,062 |
|
545 |
1,472 |
2,008 |
Balance sheet ratios |
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|
|
|
Gearing* |
22% |
24% |
|
13% |
30% |
37% |
Net debt to EBITDA |
0.45x |
0.41x |
|
0.17x |
0.56x |
0.84x |
RoCE |
46% |
53% |
|
62% |
47% |
36% |
RoIC (after tax) |
28% |
33% |
|
41% |
30% |
24% |
RoE |
48% |
48% |
|
61% |
49% |
43% |
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
1,578 |
2,107 |
|
2,766 |
2,296 |
2,046 |
Capex |
-550 |
-591 |
|
-770 |
-1,400 |
-1,000 |
Other - CF |
-89 |
-82 |
|
23 |
75 |
44 |
FCF |
939 |
1,434 |
|
2,019 |
971 |
1,090 |
Equity shareholders' cash |
864 |
1,347 |
|
1,943 |
885 |
957 |
Dividends and share buy backs |
-918 |
-1,550 |
|
-1,426 |
-1,812 |
-1,493 |
Advances (repayments) of debt |
-439 |
80 |
|
-324 |
602 |
581 |
Increase (decrease) in cash |
-493 |
-123 |
|
194 |
-325 |
45 |
Cash flow ratios |
|
|
|
|
|
|
Capex/EBITDA |
29% |
23% |
|
25% |
53% |
42% |
Cash conversion ratio |
0.5x |
1.0x |
|
1.0x |
0.5x |
0.7x |
FCF yield |
9.3% |
11.2% |
|
15.7% |
7.1% |
7.6% |
Equity shareholders' yield |
9.4% |
11.4% |
|
15.9% |
7.2% |
7.8% |
Working capital days** |
48 |
46 |
|
39 |
41 |
42 |
Valuation |
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Calculation of target price (TP) |
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$mn |
$/GDR |
Resources |
|
|
|
|
4,817 |
5.9 |
Russian steel |
|
|
|
|
12,063 |
14.7 |
Other |
|
|
|
|
97 |
0.1 |
Enterprise value |
|
|
|
|
16,978 |
20.7 |
Financial instruments as at 31 December 2017 |
|
|
|
229 |
0.3 |
|
Net debt as at 31 December 2017 |
|
|
|
|
-1,062 |
-1.3 |
Minority interest |
|
|
|
|
-15 |
0.0 |
Equity value |
|
|
|
|
16,130 |
19.7 |
Plus: one-year forward equity shareholders' cash |
|
|
|
|
1.2 |
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Less: dividends paid |
|
|
|
|
|
-2.0 |
Rounded to |
|
|
|
|
|
18.9 |
Share price on 29/11/2018 |
|
|
|
|
|
15.0 |
Expected share price return |
|
|
|
|
|
25.9% |
Plus: expected dividend yield |
|
|
|
|
|
13.5% |
Total implied one-year return |
|
|
|
|
|
39.4% |
Share price range, $ |
|
|
|
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12-month high on 15-1-2018 |
27.93 |
12-month low on 17-3-2017 |
17.17 |
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Price move since high |
-8.4% |
Price move since low |
|
49.0% |
||
Calculation of discount rate |
|
Cost of debt |
|
|
5.0% |
|
WACC |
11.3% |
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|
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Risk-free rate |
4.0% |
Tax rate |
|
|
20% |
|
Equity risk premium |
7.0% |
After-tax cost of debt |
|
4.0% |
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Beta |
1.30 |
Debt weighting |
|
20% |
||
Cost of equity |
13.1% |
Terminal growth rate |
|
3.0% |
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Valuation ratios |
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Dec-YE, $mn |
2016 |
2017 |
|
2018E |
2019E |
2020E |
P/E multiple |
7.3x |
7.6x |
|
5.8x |
7.2x |
8.4x |
Dividend yield |
10.8% |
12.9% |
|
17.9% |
13.1% |
11.9% |
EV/EBITDA |
5.3x |
5.0x |
|
4.1x |
5.2x |
6.0x |
P/B |
3.0x |
3.5x |
|
3.5x |
3.6x |
3.6x |
NAV per share, $ |
3.74 |
4.18 |
|
4.31 |
4.18 |
4.14 |
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
40