Russian steel companies. Forecast for the 4th quarter of 2020

• Russian steel companies are due to publish their 4Q20 and 2020 financials in February, which we have presented below.
• Spoiler alert: Q4 earnings are higher, but dividends are unchanged (NLMK) or lower (Severstal, MMK) due to higher net working capital.
• We do not see this as a big problem, since high steel prices will still be reflected in 1Q21 financial results. We confirm the rating ABOVE MARKET for the steel sector.

EBITDA

Should benefit from rising steel prices, up 6% qoq for Severstal (accounting for an 18% drop in volumes), 31% for NLMK and 35% for MMK. Evraz’s EBITDA for 2H20 is also expected to rise by 5% h / h.

Free cash flow

Should be significantly below q / q. Profit growth will be offset by an increase in working capital (versus a significant release in 3Q20 that spurred FCF) and growth or maintenance in capex.

Dividend

• Severstal (RUB 29.1 per share, up 2.3%) – total payment of $ 325 mn (vs. $ 182 mn FCF) due to capex adjustments.
• NLMK (6.3 rubles per share, up 3.0%) – total payment of $ 506 million (versus $ 161 million FCF) due to capex adjustments for 2020 to $ 700 million. against $ 1,150 million for 2020E.
• MMK (RUB 0.8 per share, up. 1.6%) – total payment of $ 124 mn. 100% FCF. Due to the strong balance, the market expects a higher payout, in our opinion.
• Evraz ($ 0.4 per share, up 5.8%) – total payment of $ 600 mn, 100% FCF for 2H20. The dividend policy is subjective, it only defines a lower payout limit of $ 300 million.

Reporting dates for 2020 according to IFRS

February 2 – MMK; February 4 – Severstal; February 11 – NLMK; February 25 – Evraz.