Metinvest EBITDA drops 13% m/m in November

November EBITDA at Ukraine’s largest steel maker Metinvest
(METINV) dropped 12.5% m/m to USD 196 mln, according to its monthly results
published on Jan. 29. The holding’s revenue shrank 6.7% m/m to USD 866 mln. Its
operating cash flow before working capital changes contracted 13.4% m/m to USD
168 mln, whereas cash flow from operations (before profit tax and interest)
changed from a positive USD 108 mln in October to a negative USD -34 mln in
November. The holding’s CapEx increased 7.1% m/m to USD 60 mln and its
end-of-month cash balance fell 41% m/m to USD 196 mln.

The monthly results imply that Metinvest’s EBITDA was
USD 1,793 mln in 11M17, or a 46% yoy improvement.

Dmytro Khoroshun: For the
third month in a row, Metinvest’s EBITDA is close to the level of USD 200 mln,
substantially higher than the 8M17 average of USD 145 mln. Metinvest’s high
profitability during September-November is underpinned by the strong EBITDA
margins of its metallurgical segment at around 15-20% (17% in November, much
higher than the 6% value for 8M17) due to a period of high steel prices. In
particular, Metinvest’s slab realization price jumped 12% m/m in November,
although the price of finished products increased much less, by 3%, and pig
iron and billet prices decreased 4% and 5% m/m. On the basis of our monitoring
of steel prices for contracts concluded, which are reflected in revenue with
delays of up to three months, we expect the period of strong metallurgical
segment profits to extend well into 2018.

However, we are surprised to see the mining segment’s
EBITDA margin at 26% in November, which is a very low level compared to 41% in
10M17. The last time Metinvest’s mining segment EBITDA margin was below 30% was
in July 2016, when prices for iron ore and coking coal, the two main products
of this segment, were substantially (by about 30-40%) lower than they were in
November 2017. It would seem that Metinvest’s mining segment’s costs
experienced an unexplained increase of approximately USD 40 mln in November.

The negative cash flow from operations, at USD -34
mln, is discouraging. Cash continues leaking due to increases in accounts
receivable, which affected the November operating cash flows by negative USD
119 mln, bringing the 11M17 total to USD 836 mln.

We are keeping our neutral view on Metinvest’s bonds.