Evraz – shares down, risk up

Yet the second sale of 8.3m shares would have netted him just £33m if done this week, as the iron ore miner and steelmaker’s share price has fallen 37 per cent since the July sale. The chief executive, Alexander Frolov, and major shareholder Roman Abramovich also sold stock, although the combined stake of the three is still 58 per cent. It has hardly helped sentiment that the company has not explained why the directors sold. 

The share price weakness has been exacerbated by declining demand for steel, which led to a 22 per cent drop in steel and coal cash profits in the first half. The consensus of City analysts is for full-year cash profits of $2.9bn (£2.2bn) and $2.7bn in 2020, representing respective falls of 24 per cent and 29 per cent on 2018's figures.  

Evraz’s profits are dominated by its steel division, where revenue of $4.16bn in the first half was 6 per cent lower year on year as falling prices more than offset higher sales volumes. Vanadium prices skyrocketed in 2017 and 2018, pushing up earnings with them. But now that the market has found a more sustainable price for the steel additive, this boost is unlikely to be repeated.  

The Russian company’s get-out-of-jail-free card has so far been its dividend, which is in line to generate a 14 per cent yield for 2019. That offered some leeway against the risk of sanctions and the group's bond-dominated debt, which sat at around 160 per cent of equity on June 30. 

The dividend is not in major danger, with finance chief Nikolay Ivanov saying this month that the company was committed to keeping the payouts coming, but there is no formal policy that will give investors an idea of future returns. Investment bank JPMorgan forecasts 2018 to be a high point for the dividend at 118¢, falling to 67¢ this year and sitting around 88¢ for the following two years. This is still a hefty payout. The bank’s analysts said in August that Evraz was “the most vulnerable and least sustainable” of the major Russian steel producers. JPMorgan's rating is ‘underweight’. 

In this age of greater corporate accountability, Evraz’s bona fides don’t stack up too well, either. It does not have investment-grade ratings from the big houses, and its 'ESG' social responsibility rating from index provider MSCI puts it as a ‘laggard’ at B. The company said at its capital markets day this could be upgraded by the end of the year.  Additionally, 2019 has been a terrible year for safety, with 15 deaths at Evraz's operations, including a bus crash that killed eight. That compared with 10 deaths in both 2017 and 2018.