Can a dividend be too large? Integrated steel manufacturer Evraz (EVR) looks set to answer that question in the coming weeks, after it footnoted its half-year numbers with a plan to return $429.6m (£331m) to shareholders on 8 September. This, from a company whose net borrowings are nearly three times the equity, whose cost of sales are up 44 per cent year on year, and whose post-tax profit reached a mere $86m for the period under review.
Of course, dividends are also a reflection of future prospects. And on that count, Evraz can count itself bullish. In the six months to June, higher product prices added 6.3 percentage points to the cash profit margin, with gross profits at the steel segment up 26 per cent to $741m. Even more impressive was the coal segment, where gross profit more than tripled to $661m, notwithstanding a 4.7 per cent drop in sales volumes, pricier auxiliary materials and higher Russian ruble-linked costs.
Should this continue, Evraz could easily match the $746m of operating cash flow generated in the first half of 2017. Then again, it is hard to square a half-year payout equivalent to 78 per cent of first-half free cash flow with chief executive Alexander Frolov’s comment that debt reduction “remains of paramount importance”.
On average, analysts are guiding for pre-tax profit of $1.1bn and adjusted EPS of 51.6¢ this year, against $421m and 14.9¢ in 2016.
| EVRAZ (EVR) | ||||
| ORD PRICE: | 270p | MARKET VALUE: | £3.86bn | |
| TOUCH: | 269.8-270.3p | 12-MONTH HIGH: | 281p | LOW: 124p |
| DIVIDEND YIELD: | 8.6% | PE RATIO: | na | |
| NET ASSET VALUE: | 87¢* | NET DEBT: | $4.28bn | |
| Half-year to | Turnover | Pre-tax | Earnings per | Dividend |
| 30 Jun | ($bn) | profit ($m) | share (¢) | per share (¢) |
| 2016 | 3.54 | 48.0 | nil | nil |
| 2017 | 5.11 | 294 | 4.0 | 30.0 |
| % change | +44 | +513 | - | - |
| Ex-div: | 17 Aug | |||
| Payment: | 08 Sep | |||
| £1=$1.30. *Includes intangible assets of $1.18bn, or 82¢ a share. | ||||
