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Evraz throws caution to the wind

The Roman Abramovich-backed steel giant continues to throw caution to the wind, via a high-wire distribution strategy
August 10, 2018

How high is your risk tolerance? We’re willing to bet it won’t match that of global steel giant Evraz (EVR), which has now declared dividends of $1.2bn (£935m) in 2018, following confirmation of a second half-year payment, this time of $577m.

IC TIP: Hold at 554p

That cash bonanza is clearly backed by confidence. Although cash costs for steel slabs, washed coking coal and iron ore products are all rising, chief executive and 10 per cent shareholder Alexander Frolov reports “ongoing improvement in the global steel market environment”. Whether dividends are backed by cash generation is another question. In the first half, free cash flow came in at $661m, while net profits hit $1.15bn after a 91 per cent increase in tax, a 20 per cent drop in capital expenditure and a meagre reduction in net debt.

In short, shareholder distributions remain the primary use of capital. Good news indeed for Roman Abramovich, whose 30 per cent stake will have entitled him to around $500m in dividends in the past year. Add that to his proposed sale of the Baimskaya project to KAZ Minerals, and the Chelsea FC owner’s balance sheet looks cashed up.

On the face of it, Evraz’s own financial position still looks high-wire, although Mr Frolov insists a net-debt-to-cash profits ratio of 1.1 is “well below our target”.

Bloomberg consensus forecasts are for adjusted pre-tax profits of $2.1bn and EPS of $1.03 this year, dropping to $1.51bn and 73.8¢ in 2019.

EVRAZ (EVR)    
ORD PRICE:491.1pMARKET VALUE:£8bn
TOUCH:495-496.4p12-MONTH HIGH:572pLOW: 250p
DIVIDEND YIELD:14.4%PE RATIO:5
NET ASSET VALUE:132¢*NET DEBT:180%
Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
20175.110.294.030
20186.341.5477.053
% change+24+425+1825+77
Ex-div:16 Aug   
Payment:06 Sep   
£1=$1.29. *Includes intangible assets of $1.12bn, or 78¢ a share