Metinvest confirms EBITDA rose 39% yoy in 9M17

Revenue at Ukraine’s
leading steel holding Metinvest (METINV) rose 36% yoy to USD 6.222 bln in 9M17,
according to its quarterly update published on Dec. 19. The revenue increase
by USD 1.65 bln
yoy was mainly due to
higher revenue of its metallurgical segment’s revenue, which grew by USD 1.40
bln, or 38%, yoy, of which 37pp was due to climbing prices. Sales volumes of
Metinvest’s metallurgical segment increased by 61 kt, or by 1%, yoy.

 

In its mining
segment, Metinvest reported that sales volumes in Europe rose 1.970 mmt, or 67%
yoy, to 4.906 mmt. However, due to the yoy drop in sales volumes in Ukraine
(2.994 mmt), Southeast Asia (1.782 mmt), and North America (0.731 mmt), the
total sales volume of Metinvest’s mining segment fell by 3.551 mmt, or 23%, yoy.
Nevertheless, strong growth in prices resulted in the mining segment’s yoy
revenue growth of USD 253 mln, or 29%.

 

Metinvest’s EBITDA
grew 39% yoy to USD 1.37 bln, a figure it reported on Nov. 22 in a presentation
on its preliminary results for 9M17. Its overall 9M17 EBITDA margin was
unchanged yoy at 22%. However, its metallurgical segment’s EBITDA margin
dropped 10pp yoy to 7%, whereas its mining segment’s EBITDA margin jumped 13pp
yoy to 41%.

 

Dmytro Khoroshun: Metinvest reported most of these
results on Nov. 22. Some of the details are new,
however. For example, it is encouraging to see that Metinvest was able to
substantially increase the sales volumes of its iron ore products in Europe, a
market with margins that are substantially higher than Southeast Asia (which
includes China).

 

Regarding the
increase in steel prices, the main factor behind the jump in Metinvest’s
revenue, we note that the yoy increase in average prices for semi-finished
products, 46%, was larger than that for finished products, 34%, according to
our calculations. Therefore, we are not surprised that Metinvest boosted sales
volumes of its semi-finished products by 150 kt while sales volumes of its
finished products fell by 161 kt.

 

One crucial result
that Metinvest does not disclose in its 3M and 9M trading updates is the value
of the Consolidated Net Leverage parameter calculated in accordance with its
debt restructuring documents. This parameter is calculated using Consolidated
EBITDA, which differs from Adjusted EBITDA (the one Metinvest publishes every
month) in several ways, including EBITDA of JVs and Exceptional Items (neither
is included in Consolidated EBITDA).

 

Using the
Consolidated Net Leverage value of 1.7x that Metinvest reported as of Jun. 30,
we estimate that as of Sept. 30, this parameter should be close to 1.5x, right
on top of the threshold that should allow Metinvest to attract new debt. Taking
into consideration media reports on Metinvest intending to hit the debt markets
already in January-February, which implies using the 9M17
results for the offering documentation, we conclude that the Consolidated Net
Leverage as of Sept. 30 was slightly less than 1.5x.

 

Regarding our
short-term outlook, as we reported earlier, the increase in steel prices for
contracts concluded, which was observed on July-August, was not reflected in Metinvest’s August prices, and its metallurgical segment’s
margin was 6% for that month, the same low value as for June and July.

 

Yet in September,
Metinvest’s rising steel product prices were finally reflected and its metallurgical segment’s
margin jumped to 14%. So we expect October to be another strong month for
Metinvest, with EBITDA remaining close to the recent monthly high of USD 217
mln. We are keeping our neutral view on METINV Eurobonds.