Metinvest EBITDA surges 75% yoy in 2016

Ukraine’s largest steel maker Metinvest (METINV) reported unaudited EBITDA of USD 132 mln in December, a 18% m/m increase, according to monthly results published on Feb. 24. The monthly results imply that Metinvest generated EBITDA of USD 1,359 mln in 2016, a 75% yoy surge.

Its net operating cash flow was USD 41 mln, with USD 7 mln in working capital investments in December. The holding’s CapEx surged 90% m/m to USD 84 mln in the month. Its cash inflow from financial activities increased 7% to USD 29 mln. Its cash balance decreased 7% m/m to USD 226 mln, exceeding the USD 180 mln threshold that enabled it to pay out excess cash interest for the month. Recall, Metinvest paid 182% of accrued interest on its Eurobonds for December.

Andriy Perederey: Metinvest’s preliminary 2016 EBITDA result is slightly better than our estimate of USD 1.35 bln. For 2017, we expect the holding’s fundamentals to improve further, prompted by steel and iron ore prices rising from their 2016 average. In the best-case scenario, we expect USD 2.2 bln EBITDA this year.

However, the recently imposed trade blockade of occupied Donbas is almost certain to dampen results. It has prompted the currently idling of Yenakiyeve Steel, as well as stifled coke supply from Avdiyivka Coke, whose factory and surrounding territory is also being bombarded by pro-Russian forces. In turn, that has resulted in reduced production at Azovstal and Ilyich Steel.

These factors could drive 2017 EBITDA as low as USD 1.6-1.7 bln, which would be still higher yoy and enough for the holding to smoothly service all its debt obligations. The current blockade also adds a price risk for Metinvest bonds, but we maintain our positive fundamental view.