Figure 105: Evraz, $mn (unless otherwise noted)

Evraz

EVRE.L / EVR LN

Market capitalisation, GBPmn:

7,326

Enterprise value, GBPmn:

10,590

Dec-YE

2016

2017

2018E

2019E

2020E

Income statement

Revenue

7,713

10,827

12,162

10,335

9,726

Underlying EBITDA

1,542

2,624

3,896

2,997

2,573

Underlying EBIT

1,021

2,063

3,310

2,356

1,892

Other items

-629

-496

96

0

0

Equity accounted income

-23

11

13

12

9

Net interest expense

-461

-423

-367

-373

-373

Taxation

-96

-396

-700

-399

-306

Profit after tax

-188

759

2,353

1,596

1,223

Attributable profit

-215

699

2,278

1,540

1,180

Basic EPS, USc

-15

53

158

107

82

Thomson Reuters consensus EPS, USc

144

112

93

DPS declared, USc

0

60

109

94

51

Thomson Reuters consensus DPS, USc

93

59

48

Underlying EBIT, $mn

Coal - EBIT

503

1,059

1,375

1,258

838

EBIT margin - Coal

38%

48%

53%

50%

36%

Russian & CIS steel - EBIT

785

1,228

2,217

1,517

1,563

EBIT margin - Russian & CIS

14%

16%

26%

20%

21%

North American steel - EBIT

-127

-74

-70

-137

-250

EBIT margin - North American steel

-9%

-4%

-3%

-7%

-15%

Other - EBIT

-140

-150

-211

-281

-260

Total - EBIT

1,021

2,063

3,310

2,356

1,892

EBIT margin

13%

19%

27%

23%

19%

Income statement ratios

EBITDA margin

20%

24%

32%

29%

26%

EBIT margin

13%

19%

27%

23%

19%

EPS growth

66%

453%

198%

-32%

-23%

Dividend payout ratio

0%

113%

69%

88%

63%

Input assumptions (steel)

Iron ore fines (62% Fe, CIF China), $/t

58

71

66

75

67

Semi soft coking coal, $/t

101

131

144

116

104

Hard coking coal, $/t

144

188

206

178

161

Hot rolled coil - CIS, $/t

382

502

552

475

476

RUB/$

67

58

62

67

68

Steel sales realisations, $/t

517

698

814

688

652

EBITDA per tonne, $/t

115

191

291

218

188

Capex/tonne, $

28

43

47

60

72

FCF/tonne, $

71

119

138

123

90

Sales volumes, kt

Coal products

9,867

10,499

10,982

12,447

14,900

Iron ore products

4,222

2,937

2,026

2,024

2,024

Vanadium products

20,428

22,319

18,609

19,650

19,788

Steel products

Semi-finished products

5,601

5,742

5,381

5,730

5,730

Construction products

4,416

3,991

3,780

3,722

3,722

Railway products

1,455

1,657

1,765

1,853

1,853

Flat-rolled products

887

1,023

1,045

910

894

Tubular products

534

749

838

968

968

Other

571

602

594

557

557

Total

13,464

13,764

13,404

13,739

13,723

Growth

-7%

2%

-3%

3%

0%

North American

Russian & CIS steel

steel

2%

60%

Coal

38%

Target Price, GBp:

640

Last Price, GBp:

508

Potential 12-month return:

40.2%

Dec-YE

2016

2017

2018E

2019E

2020E

Balance sheet

Net operating assets

5,521

6,054

6,476

6,678

6,977

Investments less provisions

-107

-103

-130

-134

-141

Equity

491

1,784

2,266

2,449

2,891

Minority interest BS

186

242

282

310

331

Net debt (cash)

4,737

3,925

3,798

3,786

3,614

Balance sheet ratios

Gearing*

91%

69%

63%

61%

56%

Net debt to EBITDA

3.07x

1.50x

0.97x

1.26x

1.40x

RoCE

18%

35%

51%

35%

27%

RoIC (after tax)

13%

23%

35%

23%

19%

RoE

-69%

61%

112%

65%

44%

Cash flow statement

Operating cash flow

1,222

2,024

2,650

2,531

2,223

Capex

-382

-595

-629

-829

-985

Other - CF

111

214

-175

-6

-9

FCF

951

1,643

1,845

1,696

1,229

Equity shareholders' cash

582

1,305

1,531

1,370

910

Dividends and share buy backs

-35

-469

-1,419

-1,357

-737

Advances (repayments) of debt

-765

-527

-646

0

0

Increase (decrease) in cash

-218

309

-534

13

172

Cash flow ratios

Capex/EBITDA

25%

23%

16%

28%

38%

FCF yield

12.5%

18.7%

14.9%

12.4%

9.1%

Cash conversion ratio

-2.7x

1.9x

0.7x

0.9x

0.8x

Equity shareholders' yield

21.8%

28.2%

18.5%

14.3%

9.5%

Working capital days**

7

11

27

26

26

Valuation

$mn

Calculation of target price (TP)

GBp/share

Coal

7,338

383

Russian & CIS steel

12,129

633

North American steel

-574

-30

Other

-2,421

-126

Enterprise value

16,473

860

Investments less provisions

-103

-5

Net debt as at 31 December 2017

-3,925

-205

Minority interest as at 31 December 2017

-242

-13

Equity value

12,203

637

Plus: one-year forward equity shareholders' cash

1

Less: dividends paid

-1

Rounded to

640

Share price on 1/2/2019

508

Expected share price return

26.1%

Plus: expected dividend yield

14.1%

Total implied one-year return

40.2%

Share price range, GBp:

12-month high on 4-10-2018

590

12-month low on 9-2-2018

331

Price move since high

-13.9% Price move since low

53.6%

Calculation of discount rate

WACC

11.3%

Cost of debt

5.0%

Risk-free rate

4.0%

Tax rate

20%

Equity risk premium

7.0% After-tax cost of debt

0.8%

Beta

1.30

Debt weighting

20%

Cost of equity

13.1%

Terminal growth rate

3.0%

Valuation ratios

Dec-YE

2016

2017

2018E

2019E

2020E

P/E multiple

-12.6x

6.1x

3.6x

6.2x

8.1x

Dividend yield

0.0%

18.5%

18.9%

14.2%

7.7%

EV/EBITDA

4.9x

3.4x

3.2x

4.6x

5.3x

P/B

5.4x

2.6x

3.7x

3.9x

3.3x

NAV per share, $

0.35

1.25

1.58

1.70

2.00

Figure 106: MMK, $mn (unless otherwise noted)

Magnitogorsk Iron & Steel Works (MMK)

MAGNq.L / MAGN.MM

Market capitalisation, $mn:

7,479

Enterprise value, $mn:

7,483

Dec-YE

2016

2017

2018E

2019E

2020E

Income statement

Revenue

5,630

7,546

8,230

7,280

7,438

Underlying EBITDA

1,956

2,032

2,429

1,356

1,704

Underlying EBIT

1,477

1,488

1,873

775

1,110

Other items

-32

36

-73

0

0

Equity accounted income

1

5

2

4

6

Net interest

-104

-34

-15

-17

-32

Taxation

-231

-306

-397

-170

-242

Profit after tax

1,111

1,189

1,389

592

842

Basic EPS, $/GDR

1.29

1.38

1.62

0.69

0.98

Thomson Reuters consensus EPS, $

1.64

1.26

1.27

DPS declared, $/GDR

0.21

0.72

1.31

0.58

0.58

Thomson Reuters consensus DPS, $

1.24

1.15

1.06

Underlying EBIT, $mn

Coal segment

EBIT

49

77

129

141

110

EBIT margin

Coal segment

25%

24%

36%

42%

36%

Russian steel

EBIT

1,451

1,431

1,804

779

1,148

EBIT margin

Russian steel

27%

20%

23%

11%

16%

Turkey steel

EBIT

-21

-11

-64

-140

-143

EBIT margin

Turkey steel

-4%

-2%

-10%

-25%

-26%

Other - EBIT

-2

-9

3

-5

-5

EBIT margin - Other

0%

1%

0%

1%

1%

Total - EBIT

1,477

1,488

1,873

775

1,110

EBIT margin

26%

20%

23%

11%

15%

Income statement ratios

EBITDA margin

35%

27%

30%

19%

23%

EBIT margin

26%

20%

23%

11%

15%

EPS growth

161%

7%

17%

-57%

42%

Dividend payout ratio

16%

53%

81%

84%

59%

Input assumptions (steel)

Iron ore fines (62% Fe, CIF China), $/t

58

71

66

75

67

Hard coking coal, $/t

144

188

206

178

161

Hot rolled coil - CIS, $/t

382

502

552

475

476

RUB/$

67

58

63

67

68

$/EUR

1.11

1.13

1.18

1.17

1.21

Steel sales realisations, $/t

462

615

676

576

588

EBITDA per tonne, $/t

161

166

199

107

135

Capex/tonne, $

-38

-54

-68

-67

-67

FCF/tonne, $

127

57

96

43

51

Sales volumes, kt

Slabs and billets

104

4

0

0

0

Long products

1,730

1,787

1,795

1,780

1,780

Flat & plate products

7,730

7,699

7,537

7,920

7,920

Downstream products

2,616

2,770

2,848

2,942

2,942

Total sales

12,180

12,260

12,180

12,643

12,643

Volume growth

3%

1%

-1%

4%

0%

Target Price, $:

10.1

Last Price, $:

8.6

Potential 12-month return:

23.4%

Dec-YE

2018E

2019E

2020E

2016

2017

Balance sheet

Net operating assets

5,356

6,188

5,744

5,848

6,129

Investments less provisions

53

11

9

10

10

Equity

4,694

5,691

5,682

5,222

5,743

Minority interest - BS

18

27

24

27

31

Net debt (cash)

234

-12

-391

139

-136

Balance sheet ratios

Gearing*

5%

0%

-7%

3%

-2%

Net debt to EBITDA

0.12x

-0.01x

-0.16x

0.10x

-0.08x

RoCE

30%

26%

31%

13%

19%

RoIC (after tax)

27%

20%

25%

11%

15%

RoE

28%

23%

24%

11%

15%

Cash flow statement

Operating cash flow

1,644

1,439

2,155

1,386

1,475

Capex

-463

-664

-828

-850

-850

Other - CF

365

-82

-153

9

13

FCF

1,546

693

1,174

545

639

Equity shareholders' cash

1,424

652

1,155

524

600

Dividends and share buy backs

-180

-406

-776

-1,054

-326

Advances (repayments) of debt

-1,347

44

-203

366

3

Increase (decrease) in cash

-103

290

177

-164

277

Cash flow ratios

Capex/EBITDA

24%

33%

34%

63%

50%

FCF yield

33%

9%

15%

7%

9%

Cash conversion ratio

1.3x

0.6x

0.8x

0.9x

0.7x

Equity shareholders' yield

32%

9%

14%

7%

8%

Working capital days**

59

57

49

48

48

Valuation

Calculation of target price (TP)

$mn

$/GDR

Coal segment

764

0.9

Russian steel

9,100

10.6

Turkey steel

-666

-0.8

Other

-495

-0.6

Enterprise value

8,703

10.1

Investments

11

0.0

Net cash (debt) as at 31 December 2017

12

0.0

Minority interest as at 31 December 2017

-27

0.0

Equity value

8,699

10.1

Plus: one-year forward equity shareholders' cash

0.6

Less: dividends paid

-0.7

Rounded to

10.1

Share price on 1/2/2019

8.6

Expected share price return

16.7%

Plus: expected dividend yield

6.8%

Total implied one-year return

23.4%

Share price range, $:

12-month high on 27-2-2018

11.12 12-month low on 27-12-2018

7.75

Price move since high

-22.5% Price move since low

11.2%

Calculation of discount rate

Cost of debt

4.0%

WACC

11.3%

Risk-free rate

4.0%

Tax rate

20%

Equity risk premium

7.0%

After-tax cost of debt

11.3%

Beta

1.30

Debt weighting

20%

Cost of equity

13.1%

Terminal growth rate

2.0%

Valuation ratios

Dec-YE, $mn

2016

2017

2018E

2019E

2020E

PE multiple

4.0x

6.2x

5.9x

12.5x

8.8x

Dividend yield

4%

9%

14%

7%

7%

EV/EBITDA

2.4x

3.6x

3.2x

5.6x

4.3x

P/B

0.9x

1.3x

1.5x

1.4x

1.3x

NAV per share, $

5.5

6.6

6.6

6.1

6.7

Figure 107: NLMK, $mn (unless otherwise noted)

Novolipetsk Steel (NLMK)

NLMKq.L / NLMK.MM

Market capitalisation, $mn:

14,419

Enterprise value, $mn:

15,094

Dec-YE

2016

2017

2018E

2019E

2020E

Income statement

Revenue

7,636

10,065

11,919

10,216

10,107

Underlying EBITDA

1,941

2,655

3,431

2,751

2,725

Underlying EBIT

1,485

2,031

2,836

2,171

2,138

Other items

-185

-60

-57

0

0

Equity accounted income

-61

-90

-58

-68

-73

Net interest

-66

-58

-53

-63

-62

Taxation

-233

-371

-511

-422

-415

Minority interest

4

2

-4

1

1

Attributable profit

943

1,454

2,152

1,620

1,588

Underlying earnings

1,089

1,455

2,131

1,620

1,588

Underlying EPS, $/GDR

1.82

2.43

3.56

2.70

2.65

Thomson Reuters consensus EPS, $

3.74

2.59

2.56

DPS declared, $/GDR

1.53

2.38

3.25

2.95

2.68

Thomson Reuters consensus DPS, $

3.38

2.70

2.44

Underlying EBIT, $mn

Mining - EBIT

275

524

865

925

775

EBIT margin

Mining

46%

56%

66%

68%

64%

Flat - EBIT

1,051

1,357

1,709

1,071

1,296

EBIT margin

Flat

19%

18%

20%

15%

19%

Long

91

77

192

82

65

EBIT margin

Long

7%

4%

9%

4%

3%

NLMK USA

117

139

222

180

86

EBIT margin

USA

10%

8%

11%

12%

6%

Dansteel

-7

-6

-21

-20

-21

EBIT margin

Dansteel

-2%

-1%

-4%

-5%

-5%

Other EBIT

-42

-60

-130

-67

-63

EBIT margin

Other

2%

2%

3%

2%

2%

Total EBIT

1,485

2,031

2,836

2,171

2,138

EBIT margin

19%

20%

24%

21%

21%

Income statement ratios

EBITDA margin

25%

26%

29%

27%

27%

EBIT margin

19%

20%

24%

21%

21%

EPS growth

-3%

54%

48%

-25%

-2%

Dividend payout ratio

97%

98%

90%

109%

101%

Input assumptions (steel)

Iron ore fines (62% Fe, CIF China), $/t

58

71

66

75

67

Hard coking coal, $/t

144

188

206

178

161

Hot rolled coil - CIS, $/t

382

502

552

475

476

Cold rolled coil - CIS, $/t

434

559

615

580

583

RUB/$

67

58

63

67

68

$/EUR

1.11

1.13

1.18

1.17

1.21

Steel sales realisations, $/t

479

610

684

594

588

EBITDA per tonne, $/t

122

161

197

160

159

Capex/tonne, $

35

37

37

41

41

FCF/tonne, $

65

71

101

112

95

Utilisation rate

91%

94%

96%

97%

97%

Sales volumes, kt

Pig iron

365

429

896

649

649

Slab Volumes

2,697

2,605

2,849

2,461

2,461

Billets Volumes

612

686

771

807

807

Flat Volumes

10,065

10,501

10,511

10,272

10,272

Long Volumes

2,196

2,277

2,409

3,005

3,005

Total sales

15,935

16,498

17,436

17,193

17,193

Contribution to FY18E underlying EBITDA

Flat

Long

58%

7%

USA

8%

Mining

27%

Target Price, $:

27.0

Last Price, $:

24.0

Potential 12-month return:

25.6%

Dec-YE

2018E

2019E

2020E

2016

2017

Balance sheet

Net operating assets

7,177

7,858

7,444

7,188

7,194

Investments

255

248

284

290

296

Equity

6,653

7,166

6,534

6,436

6,402

Minority interest - BS

18

17

15

13

11

Net debt (cash)

761

923

1,179

1,029

1,076

Balance sheet ratios

Gearing*

10%

11%

15%

14%

14%

Net debt to EBITDA

0.39x

0.35x

0.34x

0.37x

0.39x

RoCE

21%

26%

36%

29%

29%

RoIC (after tax)

19%

23%

30%

24%

24%

RoE

14%

20%

33%

25%

25%

Cash flow statement

Operating cash flow

1,674

1,860

2,621

2,625

2,332

Capex

-559

-603

-650

-700

-700

Other - CF

-86

-87

-218

-6

-6

FCF

1,030

1,170

1,753

1,919

1,626

Equity shareholders' cash

979

1,122

1,708

1,868

1,575

Dividends and share buy backs

-579

-1,284

-1,965

-1,718

-1,622

Advances (repayments) of debt

-407

12

-470

564

3

Increase (decrease) in cash

-7

-150

-726

714

-44

Cash flow ratios

Capex/EBITDA

29%

23%

19%

25%

26%

FCF yield

11.8%

8.7%

10.8%

12.4%

10.5%

Cash conversion ratio

1.0x

0.8x

0.8x

1.2x

1.0x

Equity shareholders' yield

12.3%

9.0%

11.3%

13.0%

11.0%

Working capital days**

77

75

70

71

71

Valuation

Calculation of target price (TP)

$mn

$/share

Mining

6,358

10.6

Flat

9,782

16.3

Long

972

1.6

USA

1,061

1.8

Dansteel

-234

-0.4

Other

-1,123

-1.9

Enterprise value

16,816

28.1

Financial instruments as at 31 December 2017

248

0.4

Net debt as at 31 December 2017

-923

-1.5

Equity value

16,141

26.9

Plus: one-year forward equity shareholders' cash

3.1

Less: dividends paid

-2.9

Rounded to

27.0

Share price on 1/2/2019

24.0

Expected share price return

12.7%

Plus: expected dividend yield

12.9%

Total implied one-year return

25.6%

Share price range, $

12-month high on 6-6-2018

28.03

12-month low on 17-3-2017

21.73

Price move since high

-14.4%

Price move since low

10.4%

Calculation of discount rate

Cost of debt

4.0%

WACC

11.3%

Risk-free rate

4.0%

Tax rate

20%

Equity risk premium

7.0%

After-tax cost of debt

0.8%

Beta

1.30

Debt weighting

20%

Cost of equity

13.1%

Terminal growth rate

2.0%

Valuation ratios

Dec-YE

2018E

2019E

2020E

2016

2017

P/E multiple

7.3x

8.6x

7.1x

8.9x

9.1x

Dividend yield

11.6%

11.5%

12.9%

12.3%

11.2%

EV/EBITDA

4.5x

5.0x

4.7x

5.6x

5.7x

P/B

1.2x

1.7x

2.3x

2.2x

2.2x

NAV per share, $

1.11

1.20

1.09

1.07

1.07