VSMPO-Avisma overview: titanium producer with 10% dividend yield

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Corporation "VSMPO-Avisma" (MOEX: VSMO) - the world's largest full-cycle titanium producer: from processing of raw materials to the release of finished products. The company was formed as a result of the merger of two enterprises in 2005: VSMPO OJSC and Avisma OJSC.

About company

VSMPO-Avisma Corporation manufactures its products from the following metals.

Titanium. Main export item, its share in the overall results is more than 90%. This metal is especially prized for its low density combined with high strength and excellent corrosion resistance.. The main consumer is the aerospace industry, since titanium alloys can function at temperatures from 0 up to +600 ° C, therefore they are used in aircraft engines for disks, blades, shafts and housings.

Ferrotitanium. It is an alloying alloy of iron and titanium with a minimum mass (20%) and maximum (75%) titanium content, obtained by reduction or remelting.

Aluminum. One of the most common and cheapest metals, its share in the overall results is about 2,5%.

The main production facilities of the corporation are located in Russia and the USA, and distributors in Europe and Asia. In addition to these companies, there are two enterprises in Ukraine: VSMPO Titan Ukraine and Demurinsky GOK, - as well as representative offices in Cyprus and the British Virgin Islands.

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Main objects of "VSMPO-Avisma"

Country, cityActivities
Corporation "VSMPO-Avisma"Russia, Verkhnyaya SaldaTitanium production
Branch "Avisma"Russia, BereznikiTitanium sponge production
АО «Ural Boeing Manufacturing»Russia, Verkhnyaya SaldaMechanical processing of titanium stampings
Alti Forge JSCRussia, SamaraProduction of products from titanium and aluminum alloys
VSMPO-TIRUS GmbHGermany, Frankfurt am MainLocal distributor
TIRUS InternationalSwitzerland, LausanneGlobal distributor
VSMPO-TYRE LimitedGreat Britain, RedditchLocal distributor
NF&M InternationalUSA, MonacoTreatment, billets and blanks
Uniti TitaniumUSA, PittsburghDeliveries of products made of commercially pure titanium
VSMPO-Tirus USUSA, LeitsdaleLocal distributor
VSMPO-Tire BeijingChina, BeijingLocal distributor

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Operating activities

COVID-19 has an extremely negative impact on the results of the corporation due to the fall in demand from the main buyers - aircraft manufacturers. Airline passenger traffic dropped sharply in Q2 2020, because of which they had to reconsider their plans to buy new aircraft, what, in turn, led to a drop in sales of titanium products.

UNITI is a joint venture with the American company Allegheny Technologies, which now takes about 30% world market, supplying industrial titanium equipment worldwide.

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Geography of deliveries of titanium products

Russia and CIS35%
Europe26%
USA26%
UNITI products: USA, Europe, Asia7%
Other countries6%

35%

Export structure of titanium products

Aerospace50%
Engine building23%
Industrial application22%
Medicine5%

50%

Dividends

The corporation does not have an associated net profit distribution ratio. At the same time, before the COVID-19 pandemic and the crisis in the industry, the company tried to distribute among shareholders almost all of its net profit under RAS., doing this twice a year - for the first half of the year and for the second.

The company before the pandemic earned an average of 10 billion rubles, and now he earns 8 billion rubles. If management decides to return to the payment of all net profit under RAS, then the current dividend will be at the level 700 R for half a year with a net profit of 8 billion rubles, and the target dividend is 900 Р with a net profit of 10 billion rubles.

Despite zero dividends, the company did not refuse to distribute net profit among shareholders, VSMPO-Avisma announced the buyback of shares in November 2020 (buyback) in the amount of 5 billion rubles by the end of 2021.

Обзор «всмпо-ависма»: производитель титана с 10% дивидендной доходностью

Dynamics of dividend payments

2013533,91 Р
2014831,07 Р
1п2015788 Р
2п2015458,22 Р
1п2016816 Р
2п20161300 Р
1п2017762,68 Р
2п2017890,45 Р
1п2018756 Р
2п2018873,42 Р
1п2019884,6 Р
2п20190 Р
20200 Р

533,91 Р

results

The company is still in crisis, from which management hopes to exit no earlier than 2022. The financial indicators of VSMPO-Avisma lag behind the pre-pandemic values ​​by an average of 15-20%.

Financial results for the last 5 years, billion rubles

RevenueEBITDARAS net profitNet profit under IFRSNet debt
201689,40839,84126,63225,48323,788
201787,97934,21419,13812,82634,227
2018101,40240,77018,78815,33549,484
2019105,43136,43023,26220,78161,799
202089,05032,8699,5296,52533,969
1п202141,06717,0228,0987,15443,026

VSMPO-Avisma multipliers for the last 5 years

EV / EBITDAP / E, RSBUP / E, IFRSP / BVNet debt / EBITDA
20164,365,625,8810,6
20176,569,914,831,11
20186,0210,412,781,091,21
20197,469,0210,101,151,7
20208,0524,235,341,141,03
1п202112,2121,6125,921,691,32

Arguments for

Baibek. The buyback will continue, the company spent less than half of the assigned amount - only 5 billion rubles. On the accounts of the subsidiary, which is carrying out the buyback, located 70 890 VSMPO-Avisma shares are about 2 billion rubles.

Dividends. Before the COVID-19 pandemic, the company tried to distribute all earned profits under RAS among shareholders.

Protection from sanctions. VSMPO-Avisma provided up to 35% all Boeing titanium needs, 65% Airbus demand and 100% — Embraer.

Arguments against

Short-term decline in demand. According to VSMPO-Avisma, decrease in global passenger turnover by 40% in 2020 with subsequent growth by 19% in 2021, on 10% in 2022 and at 5% starting in 2023 will lead to a decrease in demand for new aircraft in the short term by about 25% compared to pre-coronavirus outbreak estimates.

Evaluation. VSMPO-Avisma's current multiples are much higher than the average values ​​of the previous periods.

Non-core investments. In April 2018, the corporation bought almost a 6% stake in RusHydro, and in the 1st half of 2021, VSMPO-Avisma announced the purchase of 8709 kg of gold.

What is the bottom line

VSMPO-Avisma has a unique business, which will quickly recover after the economies of developed countries recover from the crisis. This will happen, probably, in 2023, it is logical to return to the payment of dividends during this period.

But if management decides to do it now, then the dividend for half a year will be 700 Р: the corporation has consistently earned about 8 billion rubles on average in accordance with RAS for the last two half of the year. With these data, the dividend yield of VSMPO-Avisma for 6 months will be 2,3%, and in 12 months - 4,6%. This is below, than colleagues in the metallurgical sector at NLMK, MMK and Severstal and in the mining industry - from Norilsk Nickel, "Alrosy", "Raspadskaya".

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