May
20
Severstal completed the first quarter with net loss by IAS in the amount of 644 mn USD versus 470 mn USD of profit within the similar period year before. According to the message of the company, net loss includes 381 mn USD of loss from currency exchange before tax payoff (in 4Q the net loss of the company totaled 1.2 bn USD). Sales of Severstal in 1Q 2009 totaled 2.796 bn USD (35% down). EBITDA formed a negative value – 158 mn USD versus 298 mn USD in 4Q and 1.036 bn USD in 1Q of the previous year.
Severstal reduced the capital expenses in the first quarter versus the fourth quarter of the previous year by 2.5 times o 265 mn USD. In 2009 the company also intends to free 1.2 bn USD from the turnover capital due to decrease of warehouse inventory, purchase prices, upping of monetary assets management efficiency.
Short-term debt of Severstal by late March totaled 2.03 bn USD. The net debt of the company upped from 4.783 bn USD as of December 31, 2008 to 4.872 bn USD as of March 31, 2009. Sum total debt lowered from 8.256 bn USD (as of December 31, 2008) to 7.524 bn USD. Monetary assets reduced from 3.472 bn USD (as of March 31, 2008) to 2.653 bn USD as of March 31, 2008, due to covering Eurobonds in 1Q 2009 for the amount of 325 mn USD and execution of a number of other scheduled payoffs on servicing the arrearage.
Sales of enterprises within Severstal International division reduced from 1.353 bn USD in 4Q 2008 to 972 mn USD in 1Q 2009 due to low prices and selling volumes. Along with that the volume of steel production in 1Q 2009 grew by 34.2% versus 4Q 2008 due to upping of orders on behalf of the participants of the North American market. EBITDA of the North American enterprises reduced to minus 243 mn USD in 1Q 2009 versus minus 74 mn USD in 4Q 2008.
The first matter worth outlining is that the output figures of the report turned out to be a lot worse than we expected. We expected loss, but not such a significant one. The main reason for loss ratio is the North American facility, specializing of which (motor car construction rolled metal) currently does not provide for hoping of demand recovery of the products. Note at the same time that the given figures of the report, despite the entire negative, should have been expected – earlier the company output rather modest operating estimates. The only positive moment of the report is the fact that the company has not upped its decree of financial dependency yet. At the same time the weak report of the company cannot be called the worst one or the best one versus the other companies within the sector. The stats of the industrial production, issued recently, does not leave hope for the results of the other Russian metallurgy companies turning out to be significantly better – the echo of the crisis’ first wave likely has not faded for the metallurgy companies yet.
After updating the model and the results of the public comparables research, we gained new fair value of the company’s shares at the level of 8.44 USD (13.94 USD earlier). But considering the specified rate of growth potential still existing, we confirm the recommendation BUY for the shares of Severstal.
Severstal: First quarter did not justify hopes - may 20, 2009 (PDF)