Avdiivka Coke posts losses in 2011, expects profits in 2012

Avdiivka Coke (AVDK UK) approved 2011 financials at an AGM yesterday: USD 1,458 mln in revenue (+65% yoy), USD 6 mln in EBITDA (down 11x yoy) and net losses of USD 32 mln (+12x yoy). The company’s CEO explained the losses by a switch to high-quality imported coal from Russia and the US. According to the CEO, this year domestic consumers of coke are switching back to cheaper raw materials, which should positively affect Avdiivka’s bottom line as it can consequently switch back to cheaper coal inputs. Management expects the company will generate more than USD 60 mln in net profit in 2012. Also at the meeting, shareholders voted on a “significant deals” item; holders of 1.488 mln shares (0.76% of share capital, about 15% of free float) voted against the item and obtained a right for 30-day to sell their shares back to the company. According to our estimates, the buyback price should be close to UAH 5.27/share or 6% above the current market.  

Roman Topolyuk: We concede that with the current weak market for steel products steelmakers are more interested in cheaper coke, but so far we do not expect a significant reversal in Avdiivka’s bottom line as long as it’s fully in the hands of management and parent Metinvest. So far Metinvest has not cut coal imports from the US. Furthermore, a possible shift to local coal and coke would not be sustainable, in our view: Metinvest is installing PCI units at its blast furnaces, which require higher quality coke and coal.