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Evraz shows steel amid the commodity price rout

Russia's second-largest steelmaker narrowed losses, despite revenues falling a third
March 16, 2016

Evraz's (EVR) status as a Russian steelmaker should be adequate warning for what's in store here. Crashing commodity prices and weak construction markets in a country whose economy has been hammered by western sanctions combined to send cash profit tumbling 39 per cent to $1.4bn (£1bn) in 2015. A subsequent 8.7 per cent fall in the share price came as no surprise given the roll-call of challenges.

IC TIP: Hold at 87p

Fortunately, a closer look at the numbers offers some encouragement that management has a decent handle on the downturn. Net losses narrowed to $719m from $1.3bn the prior year, as cuts to the group's cost base helped cushion the blow of difficult end markets. By slashing headcount, closing unprofitable mines, driving operational efficiencies and cutting capital expenditure by 35 per cent to $428m, the group saved $374m. Cash profit margins tightened by 1.6 percentage points to 16.4 per cent during the period, although that's a reasonable outcome given the confluence of events.

Stringent cost measures, and a weaker Russian rouble, helped to generate $799m of free cash flow. Mindful of the high levels of debt it accumulated during the commodity boom and the state of the balance sheet now that valuations have tanked, management wisely chose to use some of these proceeds to reduce debt by $465m.

S&P Capital IQ consensus forecasts next-12-months adjusted EPS of $0.13 a share, up from $0.12 in 2015.

EVRAZ (EVR)
ORD PRICE:87pMARKET VALUE:£1.2bn
TOUCH:87-87.2p12-MONTH HIGH:210pLOW: 54p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:10¢*NET DEBT:$5.35bn

Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (p)
201116.100.8836.017
201214.70-0.19-29.011 †
201314.41-0.64-34.0 6 ††
201413.06-1.08-78.0nil
20158.77-0.71-45.0nil
% change-33---

"£1=$1.42 *Includes intangible assets of $1.5bn, or 107¢ a share †Half-year dividend only

††Special dividend resulting from asset sale