Dniprovahonmash reports 2% higher profit yoy, stops paying dividends

Dniprovahonmash’s (DNVM UK) 2012 net income grew 1.8% yoy to UAH 822 mln in 2012 while revenue fell 13.4% yoy to UAH 3.9 bln, according to the company’s final results reported on April 23. Freight railcar production fell 9.7% yoy to 6,354 units for the year, mostly due to a 23% yoy production slump to just 948 units in 4Q12. Dniprovahonmash guided investors on a further 20% yoy drop in freight railcar output for 2013 on fading demand for the company’s main product, gondola cars.

The company also reported that shareholders voted at their AGM this month not to pay dividends from 2012 profit.

Roman Dmytrenko: The slump in the company’s 4Q12 output came as little surprise for us. The Russian market was virtually closed to the company by the end of the year, after Russian authorities imposed a ban on the bogie castings of the company’s key supplier in November 2012. Russia accounts for more than 70% of Dniprovahonmash sales.

To make matters worse, the company’s majority shareholder broke its generous dividend-paying policy: with DPS of UAH 17.9 two years ago and UAH 18.0 a year ago, we expected the company would continue its hefty dividend practice this year to pay no less than before (about UAH 18 DPS, which would have implied a dividend yield of more than 20%). With the worsening industry outlook, the vanishing of the dividend cushion and the stock’s extremely low liquidity, we see no benefit for minorities to hold Dniprovahonmash shares.