It has been a rollercoaster ride for Evraz (LON:EVR) shares over the last month and now, after the free-fall that started with Russia’s attack on Ukraine and separate company demerger news, traders are going back and buying at bargain prices.
Investors had started pulling out of the Russian steel and vanadium producer even before the first Russian tanks rolled into Ukraine, fearing they would lose out after the company announced (just before Russia’s attack) that it would package its coking coal operations PJSC Raspadskaya into a separate business with plans to list on the stock exchange.
The conflict in Ukraine, the sanctions and the sell-off of Russian stocks that followed have all contributed to the share price decline. Evraz shares lost 91% in the space of two months, going from 613 pence at the start of January to 53.1 at the end of last week. Even at around 300 pence some investors started buying again and after the latest drop this week shares rallied 20%.
Evraz is still open for business
The steelmaker attempted to reassure investors this week that the company was still worth a punt, saying its day-to-day operations, trading nor its financial position had not been affected so far. But it did admit that international sanctions against Russia and the restrictions imposed by Russia have created some frictions in its supply, logistics and financial flows.
“For the purposes of The Russia (Sanctions) (EU Exit) Regulations 2019, the company does not consider itself to be an entity owned by, or acting on behalf or at the direction of, any persons connected with Russia and thereby caught by such legislation,” Evraz said on Wednesday.
This refers particularly to the company’s largest shareholder, Russian billionaire and former owner of Chelsea FC Roman Abramovich who holds a nearly 30% stake in the company, and at least another company director, billionaire Alexander Abramov who is facing calls for individual sanctions.
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Abramov and Evraz chief executive Alexander Frolov recently received a large dividend payout from their holdings in the company. It said: “In relation to certain shareholders of the company (namely, Mr Roman Abramovich, Mr Alexander Abramov and Mr Alexander Frolov), the company cannot be certain as to whether such individuals are “connected with Russia” for the purposes of paragraph 16(4D) of the Regulations, but has reached the above view based on the information it has previously been provided with”.
Could Evraz be affected by further sanctions?
It might be too early to say that Evraz’ shares have reached rock bottom given that the Ukraine crisis seems far from over and further Western sanctions, both against individuals and against companies, seem very likely.
But Evraz’ underlying business is actually relatively healthy, apart from the large debt that the company carries around, and its net profit in 2021 increased by over 260% year-on-year. The bulk of its operations are in Russia and Kazakhstan, producing iron ore, steel and vanadium, but it also runs steel mills in the US.
In the past, some investors flocked to Evraz because of its exceptionally high dividend yield of over 110%. One Russia insider recently told us that most Russian companies traded in the West can continue paying out dividends in the short term through their subsidiaries outside of Russia but that this will become increasingly difficult 12-18 months down the road.