Steel_Vale_impact_Incorporating__watermark
.pdf
vk.com/id446425943
Steel: Vale impact
Incorporating higher steel prices
We increase our near-term earnings forecasts for the steel producers under our coverage, as we incorporate higher steel prices (derived from input costs plus normalised steel margins) to reflect our higher iron ore price forecasts. This follows lower global iron ore supply due to Vale’s tailings dam failure. Consequently, we increase our TPs for the Russian steel producers; however, we cut our ArcelorMittal SA (AMSA) TP by 5% to ZAR4.0. We maintain our BUY ratings on the Russian steel producers and our HOLD rating on AMSA.
Iron ore integration a key benefit that supports margins
Iron ore, on average, accounts for 22% of steel producers’ raw material costs. It is a key steelmaking ingredient: on average, 1.5 tonnes of iron ore is required to make a tonne of steel. We believe iron ore self-sufficiency provides a key benefit to steel producers as it increases their ability to control costs and provides security of supply. Severstal has the highest iron ore self-sufficiency at 115% (rising to 130% in FY23E), followed by NLMK at 97% and Evraz at 65%. MMK and AMSA are the most exposed to higher iron ore prices with only 19% and 0% self-sufficiency, respectively. We calculate that a 10% increase in iron ore prices would result in a 16% and 20% plus decrease in AMSA’s and MMK’s FY19E earnings, respectively. On our calculations, Severstal’s FY19E EPS would increase by 1.5% under the same scenario owing to its high degree of iron ore integration.
Sector update
Equity Research 31 January 2019
Steel
EMEA
Kabelo Moshesha +27 (11) 750-1472
KMoshesha@rencap.com
Johann Pretorius +27 (11) 750-1450
JPretorius2@rencap.com
Steven Friedman +27 (11) 750-1481
SFriedman@rencap.com
Siphelele Mhlongo +27 (11) 750-1420
SMhlongo@rencap.com
Derick Deale
+27 (11) 750-1458 DDeale@rencap.com
Summary sector ratings and TPs (ranked by total potential 12M return, including estimated dividends)
Company |
New |
Old |
CP |
Rating |
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TP |
TP |
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Evraz, GBp |
640 |
620 |
480 |
BUY |
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Severstal, $ |
18.1 |
17 |
15 |
BUY |
|
NLMK, $ |
27.0 |
26.4 |
22.7 |
BUY |
|
MMK, $ |
10.1 |
9.6 |
8.8 |
BUY |
|
AMSA, ZAR |
4.0 |
4.2 |
3.5 |
HOLD |
|
Evraz, GBp |
640 |
620 |
480 |
BUY |
Note: Priced at market close on 29 January 2019
Source: Renaissance Capital estimates
Risk of a tighter iron ore market
As a result of Vale’s (HOLD, TP $13.6, CP $11.5) tailings dam failure, the company expects iron ore production from its Southern System to reduce by around 40mn tpa, including pellet feed needed for 11mnt of pellets. However, this impact could be partially offset by a production increase at its other systems. Spot iron ore prices have already spiked to over $80/t over market concerns on tighter iron ore supply. We believe the removal of 40mn tpa of high-quality iron ore supply over the next three years could be iron ore price-supportive. We therefore raise our 2019 iron ore price forecast by 21% to $75/t, and our 2020 forecast by 9% to $67/t.
Increased earnings and TPs
We incorporate higher iron ore prices in our forecasts, which are offset by our slightly higher steel price (derived from input costs plus normalised steel margins) forecasts. We also incorporate higher sales volume forecasts for MMK, Severstal and NLMK following their better-than-forecast 4Q18 trading updates, resulting in the following increases to our TPs: Severstal +5.8% to $18.1/GDR, MMK +5.2% to $10.1/GDR, Evraz +3.2% to GBp640 and NLMK +2.3% to $27/GDR. We, however, cut our TP for AMSA by 5% to ZAR4.0.
© 2019 Renaissance Securities (Cyprus) Limited. All rights reserved. Regulated by the Cyprus Securities and Exchange Commission (Licence No: KEPEY 053/04). Hyperlinks to important information accessible at www.rencap.com: Disclosures and Privacy Policy, Terms & Conditions, Disclaimer.
vk.com/id446425943
Renaissance Capital
31 January 2019
Steel
Steel producers ranked by total 12M return
Figure 1: Summary sector ratings and TPs (ranked by total potential 12M return, including estimated dividends)
Company |
Unit |
12M |
Previous |
Current |
12M target |
12M fwd |
Total 12M |
12M forward |
Rating |
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TP |
12M TP |
price* |
capital return |
dividend yield |
return |
rolling P/E |
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Evraz |
GBp |
640.0 |
620.0 |
479.6 |
33.4% |
14.2% |
47.6% |
6.1x |
BUY |
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Severstal |
$ |
18.1 |
17.1 |
14.5 |
29.0% |
11.8% |
41.6% |
8.2x |
BUY |
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NLMK |
$ |
27.0 |
26.4 |
22.7 |
19.2% |
12.3% |
32.2% |
8.7x |
BUY |
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MMK |
$ |
10.1 |
9.6 |
8.8 |
15.1% |
8.0% |
22.0% |
10.9x |
BUY |
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ArcelorMittal SA |
ZAR |
4.0 |
4.2 |
3.5 |
14.3% |
0.0% |
14.3% |
24.9x |
HOLD |
*Priced as at market close on 29 January 2019
Source: Thomson Reuters, Renaissance Capital estimates
Iron ore 22% of raw material cost |
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Figure 2: Iron ore cost as % of raw material costs |
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Iron ore is a key steelmaking |
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Other costs |
ingredient, of which around 1.5 |
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tonnes is required to make a tonne of |
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48% |
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steel |
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Iron ore costs, on average, account |
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for 22% of steelmaking raw material |
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costs, making them a significant |
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input cost |
Iron ore |
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22% |
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Met coal |
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30% |
Source: Company data, Renaissance Capital estimates
Steel producers’ iron ore self-sufficiency
Figure 3: Iron ore integration by steel producer
140% |
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115% |
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120% |
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94% |
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100% |
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80% |
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65% |
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60% |
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40% |
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19% |
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20% |
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0%
0%
Severstal |
NLMK |
Evraz |
MMK |
AMSA |
Source: Company data, Renaissance Capital estimates
Severstal, NLMK and Evraz have the highest iron ore self-sufficiency
2
vk.com/id446425943
Renaissance Capital
31 January 2019
Steel
Sensitivity to a 10% increase in iron ore prices
EBITDA sensitivity
Figure 4: 2019E EBITDA sensitivity to a 10% increase in iron ore prices
4.0% |
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% change in EBITDA |
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2.1% |
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2.0% |
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0.3% |
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0.0% |
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-2.0% |
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-0.9% |
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-4.0% |
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-6.0% |
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-8.0% |
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-10.0% |
-10.0%+ |
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-12.0% |
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AMSA |
MMK |
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Evraz |
NLMK |
Severstal |
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Note: AMSA limited to 10%; we calculate a reduction of 36% in AMSA’s EBITDA should iron ore prices increase by 10%
Source: Renaissance Capital estimates
EPS sensitivity
AMSA and MMK are the most sensitive to higher iron ore prices
Severstal is the least sensitive as its iron ore operations benefit from higher iron ore prices
Figure 5: 2019E EPS sensitivity to a 10% increase in iron ore prices
% change in FY19E EPS
5% |
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0.5% |
1.5% |
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0% |
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-1.4% |
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-5% |
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-10% |
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-15% |
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-16.0% |
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-20% |
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-20.0%+ |
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-25% |
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AMSA MMK Evraz NLMK Severstal
Note: AMSA limited to 20%; we calculate a reduction of ZAc33 should iron ore prices increase by 10%
Source: Renaissance Capital estimates
We calculate that AMSA’s and MMK’s
FY19E EPS could contract by 20%+ and 16%, respectively.
3
vk.com/id446425943
Renaissance Capital
31 January 2019
Steel
Operational gearing |
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Figure 6: Steel producers ranked by FY19E EBITDA margins per tonne, $ |
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Severstal and Evraz have the highest |
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250 |
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EBITDA per tonne, $ |
EBITDA margin(RHS) |
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80% |
EBITDA margins and AMSA has the |
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lowest |
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70% |
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194 |
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200 |
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190 |
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186 |
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60% |
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148 |
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50% |
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150 |
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40% |
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100 |
40% |
36% |
32% |
34% |
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30% |
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20% |
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52 |
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10% |
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50 |
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8% |
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0% |
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0 |
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-10% |
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Severstal |
Evraz |
MMK |
NLMK |
AMSA |
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Source: Company data, Renaissance Capital estimates
Financial gearing
Figure 7: Steel producers ranked by FY19E net debt/EBITDA
1.4x |
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2019 net debt/EBITDA |
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1.3x |
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1.2x |
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1.2x |
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1.0x |
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0.8x |
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0.6x |
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0.6x |
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0.4x |
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0.4x |
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0.2x |
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0.1x |
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0.0x |
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Evraz |
AMSA |
Severstal |
NLMK |
MMK |
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Note: Gearing is defined as net debt/(net debt + equity) |
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Source: Renaissance Capital estimates |
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Figure 8: Steel producers ranked by FY19E gearing |
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0.7x |
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61% |
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0.6x |
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0.5x |
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0.4x |
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30% |
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0.3x |
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18% |
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0.2x |
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14% |
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0.1x |
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3% |
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0.0x |
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Evraz |
Severstal |
AMSA |
NLMK |
MMK |
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Note: Gearing is defined as net debt/(net debt + equity)
Source: Renaissance Capital estimates
Evraz is the most leveraged and MMK the least
The steel producers we cover have comfortable balance sheets on aggregate, with net debt/EBITDA below 0.7x
4
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Commodity revisions
Figure 9: RenCap’s commodity forecast revisions
CY |
2019E |
2020E |
2021E |
2022E |
2023E |
LT price |
Iron ore fines (62% Fe, CIF China), $/t |
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New |
75 |
67 |
65 |
66 |
68 |
62 |
Old |
62 |
62 |
63 |
64 |
65 |
60 |
Difference |
21% |
9% |
3% |
3% |
3% |
3% |
Rebar - China, $/t |
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New |
448 |
453 |
463 |
472 |
481 |
441 |
Old |
445 |
449 |
460 |
469 |
478 |
438 |
Difference |
1% |
1% |
1% |
1% |
1% |
1% |
Hot rolled coil - China, $/t |
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New |
478 |
476 |
487 |
497 |
507 |
464 |
Old |
471 |
471 |
484 |
494 |
504 |
461 |
Difference |
1% |
1% |
1% |
1% |
1% |
1% |
Source: Renaissance Capital estimates
Earnings revisions
Figure 10: Steel producers’ forecast earnings
Dec-YE |
2018E |
2019E |
2020E |
2021E |
2022E |
Arcelor Mittal SA – HEPS forecasts, ZAc |
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New |
57 |
-5 |
26 |
54 |
57 |
Old |
53 |
15 |
44 |
62 |
66 |
% change |
9% |
-135% |
-41% |
-13% |
-13% |
Thomson Reuters consensus |
71 |
42 |
56 |
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RenCap vs consensus |
-19% |
-112% |
-54% |
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Evraz – basic EPS forecasts, USc |
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New |
157.8 |
106.7 |
81.7 |
76.1 |
75.2 |
Old |
157.8 |
103.8 |
79.4 |
74.2 |
73.2 |
% change |
0% |
3% |
3% |
3% |
3% |
Thomson Reuters consensus |
146.0 |
111.5 |
88.6 |
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RenCap compared with consensus |
8% |
-4% |
-8% |
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MMK – basic EPS forecasts, $/GDR |
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New |
1.62 |
0.69 |
0.98 |
0.95 |
0.99 |
Old |
1.43 |
0.74 |
0.97 |
0.92 |
0.97 |
% change |
13% |
-7% |
1% |
3% |
3% |
Thomson Reuters consensus |
1.61 |
1.26 |
1.27 |
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RenCap vs consensus |
1% |
-45% |
-22% |
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NLMK – Underlying EPS forecasts, $/GDR |
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New |
3.56 |
2.70 |
2.65 |
2.36 |
2.26 |
Old |
3.60 |
2.61 |
2.58 |
2.36 |
2.25 |
% change |
-1% |
4% |
3% |
0% |
0% |
Thomson Reuters consensus |
3.70 |
2.68 |
2.67 |
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RenCap vs consensus |
-4% |
1% |
-1% |
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Severstal – Underlying EPS forecasts, USc |
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New |
254 |
189 |
187 |
190 |
183 |
Old |
242 |
175 |
178 |
182 |
175 |
% change |
5% |
8% |
5% |
4% |
5% |
Thomson Reuters consensus |
246 |
202 |
189 |
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RenCap vs consensus |
3% |
-6% |
-1% |
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Source: Thomson Reuters, Renaissance Capital estimates
Renaissance Capital
31 January 2019
Steel
5
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Renaissance Capital |
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31 |
January 2019 |
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Steel |
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Commodity and currency assumptions |
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Figure 11: Commodity price and currency forecasts |
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CY |
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2015 |
2016 |
2017 |
2018E |
2019E |
2020E |
2021E |
2022E |
LT Real |
||
Raw materials |
|
|
|
|
|
|
|
|
|
|
|
|
Iron ore fines (62% Fe, CIF China), $/t |
|
58 |
71 |
66 |
75 |
67 |
65 |
66 |
68 |
|
62 |
|
Hard coking coal - spot, $/t |
|
144 |
188 |
206 |
178 |
161 |
157 |
160 |
164 |
|
150 |
|
Scrap (Turkey), $/t |
|
235 |
300 |
338 |
286 |
286 |
290 |
296 |
302 |
|
276 |
|
Pig iron - CIS, $/t |
|
244 |
332 |
373 |
300 |
296 |
300 |
306 |
313 |
|
286 |
|
Slab - CIS, $/t |
|
325 |
439 |
513 |
415 |
414 |
421 |
429 |
438 |
|
401 |
|
Long products |
|
|
|
|
|
|
|
|
|
|
|
|
Rebar - CIS, $/t |
|
370 |
467 |
537 |
450 |
450 |
458 |
467 |
476 |
|
436 |
|
Rebar - China, $/t |
|
348 |
517 |
580 |
448 |
453 |
463 |
472 |
481 |
|
441 |
|
Flat products |
|
|
|
|
|
|
|
|
|
|
|
|
Hot rolled coil - USA, $/t |
|
473 |
564 |
757 |
591 |
499 |
508 |
518 |
529 |
|
484 |
|
Hot rolled coil - China, $/t |
|
377 |
508 |
564 |
478 |
476 |
487 |
497 |
507 |
|
464 |
|
Hot rolled coil - CIS, $/t |
|
382 |
502 |
552 |
475 |
476 |
484 |
494 |
504 |
|
461 |
|
Heavy plate - CIS, $/t |
|
394 |
538 |
622 |
500 |
501 |
510 |
520 |
531 |
|
486 |
|
Cold rolled coil - CIS, $/t |
|
434 |
559 |
615 |
580 |
583 |
594 |
606 |
618 |
|
566 |
|
Galvanised, $/t |
|
625 |
739 |
752 |
725 |
768 |
804 |
820 |
836 |
|
766 |
|
ZAR/$ |
|
14.70 |
13.31 |
13.24 |
14.31 |
14.14 |
14.17 |
14.45 |
15 |
|
13.00 |
|
RUB/$ |
|
66.99 |
58.33 |
62.78 |
67.00 |
68.00 |
67.03 |
65.60 |
66 |
|
57.80 |
|
$/EUR |
|
1.11 |
1.13 |
1.18 |
1.17 |
1.21 |
1.22 |
1.22 |
1.22 |
|
1.20 |
|
US Consumer Price Index |
|
240 |
245 |
251 |
256 |
261 |
266 |
272 |
277 |
|
|
|
|
|
|
|
|
|
|
|
Source: Bloomberg, Renaissance Capital estimates |
||||
6
vk.com/id446425943
ArcelorMittal South Africa – HOLD
Renaissance Capital
31 January 2019
Steel
Figure 12: ArcelorMittal SA, ZARmn (unless otherwise noted)
|
|
|
|
ArcelorMittal South Africa |
ACLJ.J |
Target price, ZAR: |
4.00 |
Market capitalisation, ZARmn: |
3,961 |
Last price, ZAR: |
3.50 |
Enterprise value, ZARmn: |
4,525 |
Potential 12-month return: |
14% |
Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
Income statement |
|
|
|
|
|
Revenue |
32,737 |
39,022 |
44,259 |
40,138 |
40,110 |
EBITDA |
190 |
-315 |
3,178 |
1,358 |
1,682 |
EBIT |
-1,092 |
-1,220 |
2,463 |
567 |
869 |
Equity accounted income |
129 |
139 |
137 |
0 |
0 |
Net interest |
-700 |
-1,441 |
-1,748 |
-644 |
-477 |
Tax |
-19 |
-2 |
-223 |
22 |
-110 |
Profit (loss) for the period |
-4,706 |
-5,128 |
-1,028 |
-56 |
283 |
Headline profit (loss) |
-2,589 |
-2,671 |
628 |
-56 |
283 |
Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
Cash flow statement |
|
|
|
|
|
Operating cash flow |
-1,052 |
-672 |
5,285 |
640 |
1,753 |
Growth capex |
-335 |
-322 |
-61 |
0 |
0 |
Maintenance capex |
-1,673 |
-1,002 |
-1,181 |
-1,204 |
-1,604 |
FCF |
-3,060 |
-1,996 |
4,044 |
-564 |
149 |
Equity shareholders' cash |
-1,863 |
-2,902 |
2,822 |
-1,028 |
-194 |
Dividends and share buy backs |
4,500 |
0 |
0 |
0 |
0 |
Movement in net debt |
2,637 |
-2,902 |
2,822 |
-1,028 |
-194 |
HEPS, ZAc |
-244 |
-205 |
57 |
-5 |
26 |
Cash flow ratios |
|
|
|
|
|
|
|
Capex/EBITDA |
1057% |
-420% |
|
39% |
89% |
95% |
|
||||||
HEPS (Consensus), ZAc |
|
|
71 |
42 |
56 |
FCF yield |
-31.7% |
-17.2% |
|
97.2% |
-10.4% |
2.7% |
|
DPS declared, ZAc |
0 |
0 |
0 |
0 |
0 |
Cash conversion ratio |
-0.7x |
-1.1x |
4.5x |
-18.4x |
-0.7x |
||
Income statement ratios |
|
|
|
|
|
Equity shareholders' yield |
-47.0% |
-73.3% |
|
71.2% |
-25.9% |
-4.9% |
|
|
|
|
|
|
Working capital days** |
20 |
17 |
|
17 |
17 |
14 |
|
|
EBITDA margin |
1% |
-1% |
7% |
3% |
4% |
Valuation |
|
|
|
|
|
|
|
EBIT margin |
-3% |
-3% |
6% |
1% |
2% |
|
|
|
|
|
|
|
|
HEPS growth |
82% |
16% |
128% |
-109% |
605% |
Calculation of target price (TP) |
|
|
|
|
ZARmn |
ZAR/share |
|
Dividend payout ratio |
0% |
0% |
0% |
0% |
0% |
Steel |
|
|
|
|
3,042 |
2.78 |
|
Input assumptions (steel) |
|
|
|
|
|
Coke and chemicals |
|
|
|
|
3,442 |
3.15 |
|
|
|
|
|
|
Other |
|
|
|
|
2,560 |
2.34 |
|
|
Iron ore - (62% Fe, CIF China) $/t |
58 |
71 |
66 |
75 |
67 |
Enterprise value |
|
|
|
|
9,044 |
8.27 |
|
Hard coking coal, $/t |
144 |
188 |
206 |
178 |
161 |
Financial instruments as at 31 December 2017 |
|
|
|
-1,236 |
-1.13 |
|
|
Steel sales realisations, $/t |
523 |
665 |
704 |
582 |
577 |
Net debt as at 31 December 2017 |
|
|
|
|
-3,386 |
-3.10 |
|
EBITDA per tonne, $/t |
3 |
-6 |
52 |
21 |
26 |
Equity value |
|
|
|
|
4,422 |
4.04 |
|
Capex/tonne, $ |
33 |
23 |
20 |
19 |
25 |
|
|
|
|
|
|
|
|
Rounded to |
|
|
|
|
|
4.00 |
|
||||||
FCF/tonne, $ |
-51 |
-35 |
67 |
-9 |
2 |
Share price on 29/1/2019 |
|
|
|
|
|
3.50 |
|
$/ZAR |
14.70 |
13.31 |
13.24 |
14.31 |
14.14 |
Expected share price return |
|
|
|
|
|
14% |
|
|
|
|
|
|
|
Plus: expected dividend yield |
|
|
|
|
|
0% |
|
Sales volumes, kt |
|
|
|
|
|
Total implied one-year return |
|
|
|
|
|
14% |
|
Domestic sales |
3,275 |
3,302 |
3,483 |
3,523 |
3,559 |
|
|
|
|
|
|
|
|
Export sales |
812 |
955 |
1,098 |
1,009 |
1,061 |
Share price range, ZAR: |
|
|
|
|
|
|
|
Total sales |
4,087 |
4,257 |
4,581 |
4,531 |
4,620 |
12-month high on 28-5-2018 |
6.08 |
12-month low on 7-8-2018 |
1.86 |
|
|||
Volume growth |
-1.1% |
4.2% |
7.6% |
-1.1% |
2.0% |
Price move since high |
-42.4% |
Price move since low |
|
88.2% |
|
||
Utilisation rate |
78% |
81% |
84% |
85% |
85% |
Calculation of discount rate |
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WACC |
14.4% |
Cost of debt |
|
|
10.0% |
|
||
Net operating assets |
15,131 |
12,680 |
9,128 |
10,100 |
10,576 |
Risk-free rate |
9.0% |
Tax rate |
|
|
28% |
|
|
Investments |
-1,104 |
-1,236 |
-1,273 |
-1,273 |
-1,273 |
Equity risk premium |
6.5% |
After-tax cost of debt |
|
7.2% |
|
||
Equity |
13,543 |
8,058 |
7,291 |
7,235 |
7,518 |
Beta |
1.30 |
Debt weighting |
|
30% |
|
||
Minority interest |
0 |
0 |
0 |
0 |
0 |
Cost of equity |
17.5% |
Terminal growth rate |
|
2.0% |
|
||
Net debt (cash) |
484 |
3,386 |
564 |
1,592 |
1,786 |
Valuation ratios |
|
|
|
|
|
|
|
Balance sheet ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-YE, $mn |
2016 |
2017 |
|
2018E |
2019E |
2020E |
|
|
Gearing* |
3.5% |
29.6% |
7.2% |
18.0% |
19.2% |
P/E multiple |
-3.6x |
-3.7x |
|
5.7x |
-68.5x |
13.5x |
|
Net debt to EBITDA |
2.5x |
- |
0.2x |
1.2x |
1.1x |
Dividend yield |
0.0% |
0.0% |
|
0.0% |
0.0% |
0.0% |
|
RoCE |
-5.9% |
-7.6% |
19.2% |
5.1% |
7.5% |
EV/EBITDA |
50.8x |
-36.9x |
|
1.3x |
4.0x |
3.3x |
|
RoIC (after tax) |
-18.9% |
-14.3% |
8.6% |
-3.5% |
4.8% |
P/B |
0.7x |
1.0x |
|
0.5x |
0.5x |
0.5x |
|
RoE |
-19.2% |
-24.7% |
8.2% |
-0.8% |
3.8% |
NAV per share, ZAR |
12.4 |
7.4 |
|
6.7 |
6.6 |
6.9 |
|
* Gearing defined as net debt/(net debt +equity)
** Working capital days is defined as (working capital/revenue)*365
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
7
vk.com/id446425943
Evraz - BUY
Renaissance Capital
31 January 2019
Steel
Figure 13: Evraz, $mn (unless otherwise noted) |
|
|
|
Evraz |
EVRE.L / EVR LN |
Target price, GBp: |
640 |
Market capitalisation, GBPmn: |
6,973 |
Last price, GBp: |
480 |
Enterprise value, GBPmn: |
10,241 |
Potential 12-month return: |
48% |
Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
Income statement |
|
|
|
|
|
Revenue |
7,713 |
10,827 |
12,162 |
10,335 |
9,726 |
Underlying EBITDA |
1,542 |
2,624 |
3,896 |
2,997 |
2,573 |
Underlying EBIT |
1,021 |
2,063 |
3,310 |
2,356 |
1,892 |
Other items |
-629 |
-496 |
96 |
0 |
0 |
Equity accounted income |
-23 |
11 |
13 |
12 |
9 |
Net interest expense |
-461 |
-423 |
-367 |
-373 |
-373 |
Taxation |
-96 |
-396 |
-700 |
-399 |
-306 |
Profit after tax |
-188 |
759 |
2,353 |
1,596 |
1,223 |
Attributable profit |
-215 |
699 |
2,278 |
1,540 |
1,180 |
Basic EPS, USc |
-15 |
53 |
158 |
107 |
82 |
Thomson Reuters consensus EPS, USc |
|
|
146 |
112 |
89 |
DPS declared, USc |
0 |
60 |
109 |
94 |
51 |
Thomson Reuters consensus DPS, USc |
|
|
84 |
60 |
49 |
Underlying EBIT, $mn |
|
|
|
|
|
Coal - EBIT |
503 |
1,059 |
1,375 |
1,258 |
838 |
EBIT margin - Coal |
38% |
48% |
53% |
50% |
36% |
Russian & CIS steel - EBIT |
785 |
1,228 |
2,217 |
1,517 |
1,563 |
EBIT margin - Russian & CIS |
14% |
16% |
26% |
20% |
21% |
North American steel - EBIT |
-127 |
-74 |
-70 |
-137 |
-250 |
EBIT margin - North American steel |
-9% |
-4% |
-3% |
-7% |
-15% |
Other - EBIT |
-140 |
-150 |
-211 |
-281 |
-260 |
Total - EBIT |
1,021 |
2,063 |
3,310 |
2,356 |
1,892 |
EBIT margin |
13% |
19% |
27% |
23% |
19% |
Income statement ratios |
|
|
|
|
|
EBITDA margin |
20% |
24% |
32% |
29% |
26% |
EBIT margin |
13% |
19% |
27% |
23% |
19% |
EPS growth |
66% |
453% |
198% |
-32% |
-23% |
Dividend payout ratio |
0% |
113% |
69% |
88% |
63% |
Input assumptions (steel) |
|
|
|
|
|
Iron ore fines (62% Fe, CIF China), $/t |
58 |
71 |
66 |
75 |
67 |
Semi soft coking coal, $/t |
101 |
131 |
144 |
116 |
104 |
Hard coking coal, $/t |
144 |
188 |
206 |
178 |
161 |
Hot rolled coil - CIS, $/t |
382 |
502 |
552 |
475 |
476 |
RUB/$ |
67 |
58 |
62 |
67 |
68 |
Steel sales realisations, $/t |
517 |
698 |
814 |
688 |
652 |
EBITDA per tonne, $/t |
115 |
191 |
291 |
218 |
188 |
Capex/tonne, $ |
28 |
43 |
47 |
60 |
72 |
FCF/tonne, $ |
71 |
119 |
138 |
123 |
90 |
Sales volumes, kt |
|
|
|
|
|
Coal products |
9,867 |
10,499 |
10,982 |
12,447 |
14,900 |
Iron ore products |
4,222 |
2,937 |
2,026 |
2,024 |
2,024 |
Vanadium products |
20,428 |
22,319 |
18,609 |
19,650 |
19,788 |
Steel products |
|
|
|
|
|
Semi-finished products |
5,601 |
5,742 |
5,381 |
5,730 |
5,730 |
Construction products |
4,416 |
3,991 |
3,780 |
3,722 |
3,722 |
Railway products |
1,455 |
1,657 |
1,765 |
1,853 |
1,853 |
Flat-rolled products |
887 |
1,023 |
1,045 |
910 |
894 |
Tubular products |
534 |
749 |
838 |
968 |
968 |
Other |
571 |
602 |
594 |
557 |
557 |
Total |
13,464 |
13,764 |
13,404 |
13,739 |
13,723 |
Growth |
-7% |
2% |
-3% |
3% |
0% |
Contribution to FY18E underlying EBITDA |
|
|
|
|
|
|
|
|
North American |
|
|
Russian & CIS |
|
|
|
steel |
|
steel |
|
|
|
2% |
|
60% |
|
|
|
|
|
Coal 38%
Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
|
Balance sheet |
|
|
|
|
|
|
|
Net operating assets |
5,521 |
6,054 |
|
6,476 |
6,678 |
6,977 |
|
Investments less provisions |
-107 |
-103 |
|
-130 |
-134 |
-141 |
|
Equity |
491 |
1,784 |
|
2,266 |
2,449 |
2,891 |
|
Minority interest BS |
186 |
242 |
|
282 |
310 |
331 |
|
Net debt (cash) |
4,737 |
3,925 |
|
3,798 |
3,786 |
3,614 |
|
Balance sheet ratios |
|
|
|
|
|
|
|
Gearing* |
91% |
69% |
|
63% |
61% |
56% |
|
Net debt to EBITDA |
3.07x |
1.50x |
|
0.97x |
1.26x |
1.40x |
|
RoCE |
18% |
35% |
|
51% |
35% |
27% |
|
RoIC (after tax) |
13% |
23% |
|
35% |
23% |
19% |
|
RoE |
-69% |
61% |
|
112% |
65% |
44% |
|
Cash flow statement |
|
|
|
|
|
|
|
Operating cash flow |
1,222 |
2,024 |
|
2,650 |
2,531 |
2,223 |
|
Capex |
-382 |
-595 |
|
-629 |
-829 |
-985 |
|
Other - CF |
111 |
214 |
|
-175 |
-6 |
-9 |
|
FCF |
951 |
1,643 |
|
1,845 |
1,696 |
1,229 |
|
Equity shareholders' cash |
582 |
1,305 |
|
1,531 |
1,370 |
910 |
|
Dividends and share buy backs |
-35 |
-469 |
|
-1,419 |
-1,357 |
-737 |
|
Advances (repayments) of debt |
-765 |
-527 |
|
-646 |
0 |
0 |
|
Increase (decrease) in cash |
-218 |
309 |
|
-534 |
13 |
172 |
|
Cash flow ratios |
|
|
|
|
|
|
|
Capex/EBITDA |
25% |
23% |
|
16% |
28% |
38% |
|
FCF yield |
12.5% |
18.7% |
|
14.9% |
12.9% |
9.5% |
|
Cash conversion ratio |
-2.7x |
1.9x |
|
0.7x |
0.9x |
0.8x |
|
Equity shareholders' yield |
21.8% |
28.2% |
|
18.5% |
15.1% |
10.1% |
|
Working capital days** |
7 |
11 |
|
27 |
26 |
26 |
|
Valuation |
|
|
|
|
|
|
|
Calculation of target price (TP) |
|
|
|
|
$mn |
GBp/share |
|
Coal |
|
|
|
|
7,328 |
383 |
|
Russian & CIS steel |
|
|
|
|
12,111 |
632 |
|
North American steel |
|
|
|
|
-573 |
-30 |
|
Other |
|
|
|
|
-2,417 |
-126 |
|
Enterprise value |
|
|
|
|
16,449 |
859 |
|
Investments less provisions |
|
|
|
|
-103 |
-5 |
|
Net debt as at 31 December 2017 |
|
|
|
|
-3,925 |
-205 |
|
Minority interest as at 31 December 2017 |
|
|
|
|
-242 |
-13 |
|
Equity value |
|
|
|
|
12,179 |
636 |
|
Plus: one-year forward equity shareholders' cash |
|
|
|
|
1 |
|
|
Less: dividends paid |
|
|
|
|
|
-1 |
|
Rounded to |
|
|
|
|
|
640 |
|
Share price on 29/1/2019 |
|
|
|
|
|
480 |
|
Expected share price return |
|
|
|
|
|
33% |
|
Plus: expected dividend yield |
|
|
|
|
|
14% |
|
Total implied one-year return |
|
|
|
|
|
48% |
|
Share price range, GBp: |
|
|
|
|
|
|
|
12-month high on 4-10-2018 |
590 |
12-month low on 9-2-2018 |
331 |
|
|||
Price move since high |
-18.7% |
Price move since low |
|
45.1% |
|
||
Calculation of discount rate |
|
|
|
|
|
|
|
WACC |
11.3% |
Cost of debt |
|
|
5.0% |
|
|
Risk-free rate |
4.0% |
Tax rate |
|
|
20% |
|
|
Equity risk premium |
7.0% |
After-tax cost of debt |
|
0.8% |
|
||
Beta |
1.30 |
Debt weighting |
|
20% |
|
||
Cost of equity |
13.1% |
Terminal growth rate |
|
3.0% |
|
||
Valuation ratios |
|
|
|
|
|
|
|
Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
|
P/E multiple |
-12.6x |
6.1x |
|
3.6x |
5.9x |
7.7x |
|
Dividend yield |
0.0% |
18.5% |
|
18.9% |
15.0% |
8.2% |
|
EV/EBITDA |
4.9x |
3.4x |
|
3.2x |
4.4x |
5.0x |
|
P/B |
5.4x |
2.6x |
|
3.7x |
3.7x |
3.1x |
|
NAV per share, $ |
0.35 |
1.25 |
|
1.58 |
1.70 |
2.00 |
|
*Gearing defined as net debt/(net debt +equity)
**Working capital days is defined as (working capital/revenue)*365
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
8
vk.com/id446425943
MMK – BUY
Renaissance Capital
31 January 2019
Steel
Figure 14: MMK, $mn (unless otherwise noted)
|
|
|
|
Magnitogorsk Iron & Steel Works (MMK) |
MAGNq.L / MAGN.MM |
Target price, $: |
10.1 |
Market capitalisation, $mn: |
7,539 |
Last price, $: |
8.8 |
Enterprise value, $mn: |
7,543 |
Potential 12-month return: |
22% |
Dec-YE |
|
2016 |
2017 |
2018E |
2019E |
2020E |
Income statement |
|
|
|
|
|
|
Revenue |
|
5,630 |
7,546 |
8,230 |
7,280 |
7,438 |
Underlying EBITDA |
1,956 |
2,032 |
2,429 |
1,356 |
1,704 |
|
Underlying EBIT |
1,477 |
1,488 |
1,873 |
775 |
1,110 |
|
Other items |
|
-32 |
36 |
-73 |
0 |
0 |
Equity accounted income |
1 |
5 |
2 |
4 |
6 |
|
Net interest |
|
-104 |
-34 |
-15 |
-17 |
-32 |
Taxation |
|
-231 |
-306 |
-397 |
-170 |
-242 |
Profit after tax |
1,111 |
1,189 |
1,389 |
592 |
842 |
|
Basic EPS, $/GDR |
1.29 |
1.38 |
1.62 |
0.69 |
0.98 |
|
Thomson Reuters consensus EPS, $ |
|
|
1.61 |
1.26 |
1.27 |
|
DPS declared, $/GDR |
0.21 |
0.72 |
1.31 |
0.58 |
0.58 |
|
Thomson Reuters consensus DPS, $ |
|
|
1.24 |
1.15 |
1.06 |
|
Underlying EBIT, $mn |
|
|
|
|
|
|
Coal segment |
|
49 |
77 |
129 |
141 |
110 |
EBIT margin |
Coal segment |
25% |
24% |
36% |
42% |
36% |
Russian steel |
|
1,451 |
1,431 |
1,804 |
779 |
1,148 |
EBIT margin |
Russian steel |
27% |
20% |
23% |
11% |
16% |
Turkey steel |
EBIT |
-21 |
-11 |
-64 |
-140 |
-143 |
EBIT margin |
Turkey steel |
-4% |
-2% |
-10% |
-25% |
-26% |
Other - EBIT |
|
-2 |
-9 |
3 |
-5 |
-5 |
EBIT margin - Other |
0% |
1% |
0% |
1% |
1% |
|
Total - EBIT |
|
1,477 |
1,488 |
1,873 |
775 |
1,110 |
EBIT margin |
|
26% |
20% |
23% |
11% |
15% |
Income statement ratios |
|
|
|
|
|
|
EBITDA margin |
35% |
27% |
30% |
19% |
23% |
|
EBIT margin |
|
26% |
20% |
23% |
11% |
15% |
EPS growth |
|
161% |
7% |
17% |
-57% |
42% |
Dividend payout ratio |
16% |
53% |
81% |
84% |
59% |
|
Input assumptions (steel) |
|
|
|
|
|
|
Iron ore fines (62% Fe, CIF China), $/t |
58 |
71 |
66 |
75 |
67 |
|
Hard coking coal, $/t |
144 |
188 |
206 |
178 |
161 |
|
Hot rolled coil - CIS, $/t |
382 |
502 |
552 |
475 |
476 |
|
RUB/$ |
|
67 |
58 |
63 |
67 |
68 |
$/EUR |
|
1.11 |
1.13 |
1.18 |
1.17 |
1.21 |
Steel sales realisations, $/t |
462 |
615 |
676 |
576 |
588 |
|
EBITDA per tonne, $/t |
161 |
166 |
199 |
107 |
135 |
|
Capex/tonne, $ |
-38 |
-54 |
-68 |
-67 |
-67 |
|
FCF/tonne, $ |
|
127 |
57 |
96 |
43 |
51 |
Sales volumes, kt |
|
|
|
|
|
|
Slabs and billets |
104 |
4 |
0 |
0 |
0 |
|
Long products |
|
1,730 |
1,787 |
1,795 |
1,780 |
1,780 |
Flat & plate products |
7,730 |
7,699 |
7,537 |
7,920 |
7,920 |
|
Downstream products |
2,616 |
2,770 |
2,848 |
2,942 |
2,942 |
|
Total sales |
|
12,180 |
12,260 |
12,180 |
12,643 |
12,643 |
Volume growth |
3% |
1% |
-1% |
4% |
0% |
|
Contribution to FY18E underlying EBITDA
Russian steel 93%
Coal segment 7%
Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
Balance sheet |
|
|
|
|
|
|
Net operating assets |
5,356 |
6,188 |
|
5,744 |
5,848 |
6,129 |
Investments less provisions |
53 |
11 |
|
9 |
10 |
10 |
Equity |
4,694 |
5,691 |
|
5,682 |
5,222 |
5,743 |
Minority interest - BS |
18 |
27 |
|
24 |
27 |
31 |
Net debt (cash) |
234 |
-12 |
|
-391 |
139 |
-136 |
Balance sheet ratios |
|
|
|
|
|
|
Gearing* |
5% |
0% |
|
-7% |
3% |
-2% |
Net debt to EBITDA |
0.12x |
-0.01x |
|
-0.16x |
0.10x |
-0.08x |
RoCE |
30% |
26% |
|
31% |
13% |
19% |
RoIC (after tax) |
27% |
20% |
|
25% |
11% |
15% |
RoE |
28% |
23% |
|
24% |
11% |
15% |
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
1,644 |
1,439 |
|
2,155 |
1,386 |
1,475 |
Capex |
-463 |
-664 |
|
-828 |
-850 |
-850 |
Other - CF |
365 |
-82 |
|
-153 |
9 |
13 |
FCF |
1,546 |
693 |
|
1,174 |
545 |
639 |
Equity shareholders' cash |
1,424 |
652 |
|
1,155 |
524 |
600 |
Dividends and share buy backs |
-180 |
-406 |
|
-776 |
-1,054 |
-326 |
Advances (repayments) of debt |
-1,347 |
44 |
|
-203 |
366 |
3 |
Increase (decrease) in cash |
-103 |
290 |
|
177 |
-164 |
277 |
Cash flow ratios |
|
|
|
|
|
|
Capex/EBITDA |
24% |
33% |
|
34% |
63% |
50% |
FCF yield |
33% |
9% |
|
15% |
7% |
9% |
Cash conversion ratio |
1.3x |
0.6x |
|
0.8x |
0.9x |
0.7x |
Equity shareholders' yield |
32% |
9% |
|
14% |
7% |
8% |
Working capital days** |
59 |
57 |
|
49 |
48 |
48 |
Valuation |
|
|
|
|
|
|
Calculation of target price (TP) |
|
|
|
|
$mn |
$/GDR |
Coal segment |
|
|
|
|
762 |
0.9 |
Russian steel |
|
|
|
|
9,087 |
10.6 |
Turkey steel |
|
|
|
|
-665 |
-0.8 |
Other |
|
|
|
|
-494 |
-0.6 |
Enterprise value |
|
|
|
|
8,691 |
10.1 |
Investments |
|
|
|
|
11 |
0.0 |
Net cash (debt) as at 31 December 2017 |
|
|
|
|
12 |
0.0 |
Minority interest as at 31 December 2017 |
|
|
|
|
-27 |
0.0 |
Equity value |
|
|
|
|
8,687 |
10.1 |
Plus: one-year forward equity shareholders' cash |
|
|
|
|
0.6 |
|
Less: dividends paid |
|
|
|
|
|
-0.6 |
Rounded to |
|
|
|
|
|
10.1 |
Share price on 29-1-2019 |
|
|
|
|
|
8.8 |
Expected share price return |
|
|
|
|
|
15.1% |
Plus: expected dividend yield |
|
|
|
|
|
6.6% |
Total implied one-year return |
|
|
|
|
|
21.7% |
Share price range, $: |
|
|
|
|
|
|
12-month high on 27-2-2018 |
11.12 |
12-month low on 27-12-2018 |
7.75 |
|||
Price move since high |
-20.8% |
Price move since low |
|
13.7% |
||
Calculation of discount rate |
|
|
|
|
|
|
WACC |
11.3% |
Cost of debt |
|
|
4.0% |
|
Risk-free rate |
4.0% |
Tax rate |
|
|
20% |
|
Equity risk premium |
7.0% |
After-tax cost of debt |
|
11.3% |
||
Beta |
1.30 |
Debt weighting |
|
20% |
||
Cost of equity |
13.1% |
Terminal growth rate |
|
2.0% |
||
Valuation ratios |
|
|
|
|
|
|
Dec-YE, $mn |
2016 |
2017 |
|
2018E |
2019E |
2020E |
PE multiple |
4.0x |
6.2x |
|
5.9x |
12.7x |
8.9x |
Dividend yield |
4% |
9% |
|
14% |
7% |
7% |
EV/EBITDA |
2.4x |
3.6x |
|
3.2x |
5.7x |
4.4x |
P/B |
0.9x |
1.3x |
|
1.5x |
1.5x |
1.3x |
NAV per share, $ |
5.5 |
6.6 |
|
6.6 |
6.1 |
6.7 |
*Gearing defined as net debt/(net debt +equity)
**Working capital days is defined as (working capital/revenue)*365
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
9
vk.com/id446425943
NLMK – BUY
Renaissance Capital
31 January 2019
Steel
Figure 15: NLMK, $mn (unless otherwise noted)
|
|
|
|
Novolipetsk Steel (NLMK) |
NLMKq.L / NLMK.MM |
Target price, $: |
27.0 |
Market capitalisation, $mn: |
13,639 |
Last price, $: |
22.7 |
Enterprise value, $mn: |
14,314 |
Potential 12-month return: |
32.2% |
Dec-YE |
|
2016 |
2017 |
2018E |
2019E |
2020E |
Income statement |
|
|
|
|
|
|
Revenue |
|
7,636 |
10,065 |
11,919 |
10,216 |
10,107 |
Underlying EBITDA |
1,941 |
2,655 |
3,431 |
2,751 |
2,725 |
|
Underlying EBIT |
1,485 |
2,031 |
2,836 |
2,171 |
2,138 |
|
Other items |
|
-185 |
-60 |
-57 |
0 |
0 |
Equity accounted income |
-61 |
-90 |
-58 |
-68 |
-73 |
|
Net interest |
|
-66 |
-58 |
-53 |
-63 |
-62 |
Taxation |
|
-233 |
-371 |
-511 |
-422 |
-415 |
Minority interest |
4 |
2 |
-4 |
1 |
1 |
|
Attributable profit |
943 |
1,454 |
2,152 |
1,620 |
1,588 |
|
Underlying earnings |
1,089 |
1,455 |
2,131 |
1,620 |
1,588 |
|
Underlying EPS, $/GDR |
1.82 |
2.43 |
3.56 |
2.70 |
2.65 |
|
Thomson Reuters consensus EPS, $ |
|
|
3.70 |
2.68 |
2.67 |
|
DPS declared, $/GDR |
1.53 |
2.38 |
3.25 |
2.95 |
2.68 |
|
Thomson Reuters consensus DPS, $ |
|
|
3.38 |
2.62 |
2.40 |
|
Underlying EBIT, $mn |
|
|
|
|
|
|
Mining - EBIT |
|
275 |
524 |
865 |
925 |
775 |
EBIT margin |
g |
46% |
56% |
66% |
68% |
64% |
Flat - EBIT |
|
1,051 |
1,357 |
1,709 |
1,071 |
1,296 |
EBIT margin |
|
19% |
18% |
20% |
15% |
19% |
Long |
|
91 |
77 |
192 |
82 |
65 |
EBIT margin |
g |
7% |
4% |
9% |
4% |
3% |
NLMK USA |
|
117 |
139 |
222 |
180 |
86 |
EBIT margin |
SA |
10% |
8% |
11% |
12% |
6% |
Dansteel |
|
-7 |
-6 |
-21 |
-20 |
-21 |
EBIT margin |
l |
-2% |
-1% |
-4% |
-5% |
-5% |
Other |
|
-42 |
-60 |
-130 |
-67 |
-63 |
EBIT margin |
Other |
2% |
2% |
3% |
2% |
2% |
Total |
|
1,485 |
2,031 |
2,836 |
2,171 |
2,138 |
EBIT margin |
|
19% |
20% |
24% |
21% |
21% |
Income statement ratios |
|
|
|
|
|
|
EBITDA margin |
25% |
26% |
29% |
27% |
27% |
|
EBIT margin |
|
19% |
20% |
24% |
21% |
21% |
EPS growth |
|
-3% |
54% |
48% |
-25% |
-2% |
Dividend payout ratio |
97% |
98% |
90% |
109% |
101% |
|
Input assumptions (steel) |
|
|
|
|
|
|
Iron ore fines (62% Fe, CIF China), $/t |
58 |
71 |
66 |
75 |
67 |
|
Hard coking coal, $/t |
144 |
188 |
206 |
178 |
161 |
|
Hot rolled coil - CIS, $/t |
382 |
502 |
552 |
475 |
476 |
|
Cold rolled coil - CIS, $/t |
434 |
559 |
615 |
580 |
583 |
|
RUB/$ |
|
67 |
58 |
63 |
67 |
68 |
$/EUR |
|
1.11 |
1.13 |
1.18 |
1.17 |
1.21 |
Steel sales realisations, $/t |
479 |
610 |
684 |
594 |
588 |
|
EBITDA per tonne, $/t |
122 |
161 |
197 |
160 |
159 |
|
Capex/tonne, $ |
35 |
37 |
37 |
41 |
41 |
|
FCF/tonne, $ |
|
65 |
71 |
101 |
112 |
95 |
Utilisation rate |
|
91% |
94% |
96% |
97% |
97% |
Sales volumes, kt |
|
|
|
|
|
|
Pig iron |
|
365 |
429 |
896 |
649 |
649 |
Slab |
|
2,697 |
2,605 |
2,849 |
2,461 |
2,461 |
Billets |
|
612 |
686 |
771 |
807 |
807 |
Flat |
|
10,065 |
10,501 |
10,511 |
10,272 |
10,272 |
Long |
|
2,196 |
2,277 |
2,409 |
3,005 |
3,005 |
Total sales |
|
15,935 |
16,498 |
17,436 |
17,193 |
17,193 |
Contribution to FY18E underlying EBITDA |
|
|
Flat |
Long |
|
58% |
||
7% |
||
|
||
|
USA |
|
|
8% |
|
|
Mining |
|
|
27% |
Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
Balance sheet |
|
|
|
|
|
|
Net operating assets |
7,177 |
7,858 |
|
7,444 |
7,188 |
7,194 |
Investments |
255 |
248 |
|
284 |
290 |
296 |
Equity |
6,653 |
7,166 |
|
6,534 |
6,436 |
6,402 |
Minority interest - BS |
18 |
17 |
|
15 |
13 |
11 |
Net debt (cash) |
761 |
923 |
|
1,179 |
1,029 |
1,076 |
Balance sheet ratios |
|
|
|
|
|
|
Gearing* |
10% |
11% |
|
15% |
14% |
14% |
Net debt to EBITDA |
0.39x |
0.35x |
|
0.34x |
0.37x |
0.39x |
RoCE |
21% |
26% |
|
36% |
29% |
29% |
RoIC (after tax) |
19% |
23% |
|
30% |
24% |
24% |
RoE |
14% |
20% |
|
33% |
25% |
25% |
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
1,674 |
1,860 |
|
2,621 |
2,625 |
2,332 |
Capex |
-559 |
-603 |
|
-650 |
-700 |
-700 |
Other - CF |
-86 |
-87 |
|
-218 |
-6 |
-6 |
FCF |
1,030 |
1,170 |
|
1,753 |
1,919 |
1,626 |
Equity shareholders' cash |
979 |
1,122 |
|
1,708 |
1,868 |
1,575 |
Dividends and share buy backs |
-579 |
-1,284 |
|
-1,965 |
-1,718 |
-1,622 |
Advances (repayments) of debt |
-407 |
12 |
|
-470 |
564 |
3 |
Increase (decrease) in cash |
-7 |
-150 |
|
-726 |
714 |
-44 |
Cash flow ratios |
|
|
|
|
|
|
Capex/EBITDA |
29% |
23% |
|
19% |
25% |
26% |
FCF yield |
11.8% |
8.7% |
|
10.8% |
13.1% |
11.1% |
Cash conversion ratio |
1.0x |
0.8x |
|
0.8x |
1.2x |
1.0x |
Equity shareholders' yield |
12.3% |
9.0% |
|
11.3% |
13.8% |
11.6% |
Working capital days** |
77 |
75 |
|
70 |
71 |
71 |
Valuation |
|
|
|
|
|
|
Calculation of target price (TP) |
|
|
|
|
$mn |
$/share |
Mining |
|
|
|
|
6,349 |
10.6 |
Flat |
|
|
|
|
9,768 |
16.3 |
Long |
|
|
|
|
971 |
1.6 |
USA |
|
|
|
|
1,059 |
1.8 |
Dansteel |
|
|
|
|
-234 |
-0.4 |
Other |
|
|
|
|
-1,122 |
-1.9 |
Enterprise value |
|
|
|
|
16,792 |
28.0 |
Financial instruments as at 31 December 2017 |
|
|
|
248 |
0.4 |
|
Net debt as at 31 December 2017 |
|
|
|
|
-923 |
-1.5 |
Equity value |
|
|
|
|
16,117 |
26.9 |
Plus: one-year forward equity shareholders' cash |
|
|
|
|
3.1 |
|
Less: dividends paid |
|
|
|
|
|
-2.9 |
Rounded to |
|
|
|
|
|
27.0 |
Share price on 29/1/2019 |
|
|
|
|
|
22.7 |
Expected share price return |
|
|
|
|
|
19.2% |
Plus: expected dividend yield |
|
|
|
|
|
12.9% |
Total implied one-year return |
|
|
|
|
|
32.2% |
Share price range, $ |
|
|
|
|
|
|
12-month high on 6-6-2018 |
28.03 |
12-month low on 17-3-2017 |
21.73 |
|||
Price move since high |
-19.2% |
Price move since low |
|
4.2% |
||
Calculation of discount rate |
|
|
|
|
|
|
WACC |
11.3% |
Cost of debt |
|
|
4.0% |
|
Risk-free rate |
4.0% |
Tax rate |
|
|
20% |
|
Equity risk premium |
7.0% |
After-tax cost of debt |
|
0.8% |
||
Beta |
1.30 |
Debt weighting |
|
20% |
||
Cost of equity |
13.1% |
Terminal growth rate |
|
2.0% |
||
Valuation ratios |
|
|
|
|
|
|
Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
P/E multiple |
7.3x |
8.6x |
|
7.1x |
8.4x |
8.5x |
Dividend yield |
11.6% |
11.5% |
|
12.9% |
13.0% |
11.8% |
EV/EBITDA |
4.5x |
5.0x |
|
4.7x |
5.3x |
5.4x |
P/B |
1.2x |
1.7x |
|
2.3x |
2.1x |
2.1x |
NAV per share, $ |
1.11 |
1.20 |
|
1.09 |
1.07 |
1.07 |
*Gearing defined as net debt/(net debt +equity)
**Working capital days is defined as (working capital/revenue)*365
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
10