EVRAZ PLC (LON: EVR)

EVRAZ Plc is an FTSE-100 listed Industrial Metals and Mining company founded in 1992 and headquartered in London, the United Kingdom. EVRAZ has been listed on the London Stock Exchange since 8 June 2005. Primarily, it is operating as a steel, mining and vanadium business with global operations. The Group has footprints in the United States, Canada, Czech Republic, Russia, and Kazakhstan, along with offices in London and Moscow. The Company offers infrastructure steel products. It serves in more than 70 countries internationally. It is operating as a leading player of infrastructure steel in several markets such as the US and Russian rail market, Russian beam market, Russian construction market and American LDP market.

On 29 July 2021, EVRAZ would release its Q2 FY2021 trading update, and on 5 August 2021, it would announce its H1 FY2021 financial results.

Recent trend of dividend payments

  (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by EVRAZ from FY2017 to FY2020. In FY2020, EVR paid a total dividend of USD 0.90 per share. In FY2021, EVRAZ paid a dividend per share of USD 0.20 on 25 June 2021(interim dividend). It had an ex-dividend date of 27 May 2021.

The current dividend yield of EVR at 5.70% is higher than that of the industrial metals and mining sector at 4.90%.

Growth Prospects

• Resilience during the pandemic: In FY2020, EVR’s net profit surged YoY by ~135.1%, and net debt declined by 2.6% YoY. It reflects EVRAZ’s resilient performance amid challenging market conditions. Hence, there are expected improvements in financials by further potential debt reduction as well as better earnings prospects.
• Potential market normalisation: As per industry experts, driven by high utilisation of operational plants and re-stocking through the value chain, steel demand would normalise in H2 FY2021 and FY2022, driving the growth of EVRAZ.
• Increasing steel demand in Russia: Driven by the Russian government stimulus, construction and infrastructure spending in Russia is expected to rise. Hence, Russian steel demand could reach pre-pandemic FY2019 levels.
• Cost competitiveness: EVRAZ implemented cost control and efficiency improvement measures. EVRAZ NTMK is ranked among the most efficient global plants for liquid steel. EVR has high self-sufficiency in iron ore, reducing the cost of supply of it. Hence, compared to its unintegrated peers, EVR has a significant cost advantage.
• Environmental goals: EVRAZ plans to decrease Scope 1 and Scope 2 greenhouse gas emissions from its steel production in Russia and the US by 20% by 2030, with respect to 2019 levels. Hence, they could save costs by meeting government regulations and could get rewarded by government incentives.

Key Risks 

• Global demand and supply imbalance: EVR’s operational performance is exposed to the global macroeconomic environment and industry conditions such as global demand and supply imbalance, which could affect product volumes and prices across all markets.
• Changes in market conditions: EVR needs to be adaptive to the changes in market conditions. Otherwise, it could result in a contract loss and also an imposition of sanctions by governments.
• Disruption in many regions: If the Indian variant of Covid-19 drives the governments to enforce fresh lockdowns, there could be disruption challenges in many regions where EVRAZ operates, affecting its business.
• Production delays and outages: Due to adverse weather events or mining infrastructure failures, there could be long production delays and outages. These could have a material impact on production, operating performance, financial condition.
• Change in CEO: Aleksey Ivanov would replace Alexander Frolov as the CEO of EVR effective 1 September 2021. The change in CEO could have some impact on the strategy of the Company.
  

Now we will analyze some key fundamental and shareholders statistics of EVRAZ PLC.

Recent Development 

Change in the details of Director: On 1 July 2021, EVR announced that its independent non-executive director Deborah Gudgeon had been appointed a non-executive director of Petra Diamonds Limited.

Financial and Operational Highlights (for three months ended 31 March 2021 as of 29 April 2021)

(Source: LSE Website)

• Due to unscheduled downtime of the sintering machine, total crude steel output declined by 1.7% QoQ in Q1 FY2021.
• Driven mainly by reduced steel availability, seasonal fall in sales of construction products and local decline in demand for rails in Russia, steel products sale was down 9.9% QoQ in Q1 FY2021.
• Fuelled by higher volumes from Novokuznetsk and Razrez Raspadsky sites, total raw cooking production surged by 7.8% QoQ in Q1 FY2021.
• The increased coal mining volumes resulted in 3.6% QoQ higher production in coking coal concentrate in Q1 FY2021.
• Mainly, due to serving the active Chinese oxide market, the external sales of vanadium products were down 19.7% QoQ in Q1 FY2021.
• Primarily due to a decline in iron concentrate production at EVRAZ KGOK and shipments of iron ore products to EVRAZ NTMK, external sales of iron ore products declined by 30.1% QoQ in Q1 FY2021.

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 7 July 2021, at 7:40 AM GMT, EVR’s shares were trading at GBX 594.00, up by 1.26% against the previous day closing price. Stock 52-week High and Low were GBX 707.60 and GBX 279.80, respectively.

On a daily chart, EVR's price is sustaining above 200-day EMA of about GBX 537.50 and 200-day SMA of about GBX 516.70, indicating the possibility of an upward movement. The momentum indicator RSI (14-period) is trading at ~41.36 level and moving towards the oversold zone.

In the last year, EVRAZ’s stock has delivered a good positive return of ~98.24%. It has outperformed the FTSE 100 index with a return of about 12.96%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

EVR delivered an overall resilient performance in Q1 FY2021, with total raw coking coal production rising 7.8% QoQ. There are favourable mining conditions at the Esaulskaya and Razrez Raspadsky sites. The management expects market sentiment to remain strong in the North American steel segment, which provides further confidence for FY2021 and beyond. The Company could benefit from its incremental debt reduction and better earnings prospects, potential market normalisation, rising steel demand in Russia, the Company’s own cost competitiveness and having greenhouse gas emission reduction goals going into H2 FY2021. The management anticipates further market recovery as the health situation improves.

The Board declared an interim dividend per share of USD 0.20 on 15 April 2021, reflecting the Board's confidence in EVRAZ’s financial position and outlook. On the technical chart, the next important support level is at GBX 490.00.

Considering the resilient performance, decent growth prospects, potentially increasing demand from construction and infrastructure, the decent profitability and liquidity profile of the business, and support from the valuation as done using the above method, we have given a “BUY” recommendation on EVRAZ Plc at the current price of GBX 594.00 (as on 7 July 2021 at 7:40 AM GMT), with lower-double digit upside potential based on 7.63x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective buy stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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