EVRAZ PLC (LON: EVR) 

EVRAZ PLC (LON: EVR) is an FTSE 100 index listed Industrial Metal and Mining Company. The Company’s operations are in the Czech Republic, Canada, Russian Federation, Italy, Kazakhstan, and the USA. Moreover, EVR is engaged in the manufacturing of steel and steel products, iron ore mining and enrichment, coal mining, manufacturing vanadium products, and trading operations & logistics.

(Source: Company Presentation)

Recent trend of dividend payments: EVR had paid an interim dividend of 55 US cents per share on 10 September 2021, while the ex-dividend date was 12 August 2021.

Growth Prospects

• Decent Guidance for Iron Ore Production: The iron ore production volumes are expected to increase during Q4 FY21 following the completion of repairs at EVRAZ KGOK's burning furnaces and crushing complex in September.
• Increased Production from Pueblo Mine: EVR’s Pueblo's crude steel production increased by 38.6% QoQ during Q3 FY21 as operations resumed from the unplanned downtime in June.
• Long Term Construction: The construction of a new vanadium slag processing plant at the Uzlovaya special economic zone, in Russia's Tula region remained on track with the launch of the plant scheduled for 2025. The Overall investment in the project is expected to be approximately USD 228 million.

Key Risks

• Reduced Sales: The Sales of raw coking coal witnessed a significant decline during 9M FY21 when compared with the prior-year levels.
• Reduced Demand for Vanadium: The semiconductor shortage and slowdowns in the Russian oil, gas and rail sectors had slowed down the demand for vanadium from the automotive sector.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of EVRAZ PLC.

Abramovich (Roman Arkadyevich is the most significant shareholder as it holds nearly 417.77 million shares as of 30 September 2021. 

Q3 FY21 Trading Update (for three months ended 30 September 2021, as of 28 October 2021)

(Source: Company result)

• Decent Output: The crude steel output edged up quarter-on-quarter by around 1.0% during Q3 FY21 when compared with Q2 FY21, driven by larger production volumes at EVRAZ North America.
• Flat Coal Production: The Coal segment's standalone coal concentrate production remained flat at the level of Q2 2021.

H1 FY21 Financial Highlights (for six months ended 30 June 2021, as of 05 August 2021)

(Source: Company result)

• Solid Top-Line Business: The consolidated revenue grew by around 24% during H1 FY21, while the net profit almost doubled during the period.
• Free Cash Flow: The Company had reported a robust free cash flow of around USD 836 million during H1 FY21, while it was USD 315 million for H1 FY20.
• Reduction in Net Debt: The net debt had shown a significant reduction by USD 95 million to USD 3.26 billion as of 30 June 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 08 December 2021, at 08:04 AM GMT, EVR’s shares were trading at GBX 617.40, up by around 0.10% from the previous day closing price. Stock 52-week High and Low were 707.60 and GBX 419.30, respectively.

From a technical perspective, the stock price is hovering above the 20-days exponential moving average of GBX 597.40, indicating an upside potential in the stock price. Moreover, the MACD line remained above the signal line. Hence, there could be an uptick in the stock price.

Over the last year, EVR’s stock price has delivered a positive return of ~44.75%, and it has outperformed the FTSE All-Share Industrial Metals & Mining index (benchmark sector) with a return of around 40.95% and the FTSE 100 index (benchmark index) with a return of approximately 12.18%.  

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

Business Outlook

EVR had several operational growth catalysts which would enhance revenue streams over the medium term. Meanwhile, the raw coal production is expected to increase during Q4 FY21 because of the stabilisation of production volumes at the Alardinskaya and Raspadskaya mines and the launch of new equipment at the Raspadskaya-Koksovaya open-pit mine. The development of vanadium production in the Tula region will create new jobs, decrease processing costs, and strengthen the existing constructive dialogue between EVRAZ and the region's government. The Company also remained committed to the disposal of the coal business and expected to complete the transaction by the end of 2021. EVR may show sizeable correction because of several factors such as rising inflation and the Omicron variant of coronavirus. Thus, it would be advisable for the clients to take a reasonable position on this Company as per their risk appetite.

Considering the solid operational progress, robust financial performance during H1 FY21, strong dividend yield, increased production prospects, and support from the valuation as done using the above method, we have given a “BUY” recommendation on EVRAZ PLC at the current market price of GBX 617.40 (as on 08 December 2021 at 08:04 AM GMT), with lower-double digit upside potential based on 5.21x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

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

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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