Central Iron ore cuts income 3.4x yoy, dividends may yield 9%

Central Iron Ore (CGOK UK) reported a 3.37x yoy decrease in its bottom line to UAH 770 mln in 2012, according to preliminary results reported in the company’s AGM announcement on March 14. The agenda for the AGM, scheduled for April 18, contains an item for approving significant deals.

Roman Topolyuk: Central Iron Ore usually distributes more than 90% of its profit in dividends and this year shouldn’t be any different. However, the company’s bottom line clearly disappointed, falling 38% below our estimates. If the company continues with its 97% dividend payout, its DPS will be UAH 0.64 at an 8.8% yield.

Another option that shareholders may use at the company’s AGM is exiting the stock by selling shares to the issuer at a price of at least UAH 7.25/share, after voting against the significant deals item (please refer to our Feb. 19 note for more details).

The uniqueness of Central Iron Ore in the 2012 season was that the company allowed shareholders to both receive their generous dividends and use an option to sell back shares afterwards (usually, companies set the ex-dividend date after the option to sell back shares expires).

The company’s full-year bottom line suggests profit decreased 2.8x in 2H12 compared to 1H12, which does not fully match the company’s production trend and iron ore market prices. For instance, the bottom line of its peer Ferrexpo declined 2x over the same period. We believe therefore a large portion of Central GOK’s 2H12 profit drop was due to one-off costs.