Important news and key indicators
Branch: metallurgy and mining
Sector: materials
Ticker: MAGN
Country: Russia ??
Buy shares of MMK in Tinkoff Investments
Table of contents
- About company
- Organizational structure
- Assets
- Segments
- Key operating and financial indicators
- Why Stocks Can Go Up
- Why Stocks May Fall
- Dividend policy
- What is important to know right now
- What we wrote earlier about this company
? About company
MMC (MCX: MAGN) — Russian manufacturer of steel products. The company provides construction steel, pipe, machine- and automotive industry. At the end of 2021, the revenue structure is dominated by Russia and the CIS countries with a share in 74%, and the Middle East with share 11%. MMK shares have been traded on the Moscow Exchange since 2007 under the ticker symbol MAGN.
? Organizational structure
A controlling stake in MMK belongs to Viktor Rashnikov, who has served as chairman of the board of directors for many years. More about 20% shares are in free float.
Structure of share capital on 3 Martha 2022
| Victor Rashnikov | 79,76% |
| Other | 20,24% |
79,76% Other 20,24%
? Assets
The company's key assets are located in Magnitogorsk - Chelyabinsk region. There are also assets in the Perm Territory and the Kemerovo Region., and foreign assets include two plants in Turkey.
By the end of 2021, the company employs more than 56 thousand people, and the book value of the enterprise exceeds 465 billion rubles.
? Segments
MMK identifies three operating business segments: Russian steel segment, Turkey and the coal mining segment.
Steel segment of Russia. The largest segment of the company, which includes multiple assets:
- Magnitogorsk Iron and Steel Works is one of the largest metallurgical plants in Russia. Production capacity is 10.3 million tons of pig iron, 14,5 million tons of steel, more than 12 million tons of flat products, 6 million tons of premium products per year. Premium products include cold-rolled steel, thick sheet, rolled products with polymer coating and other products of deep processing. Besides, the enterprise is the only manufacturer of tinplate in Russia.
- MMK-Metiz is one of the three largest manufacturers of metal products in Russia (hardware). The production capacity of the enterprise is 0.8 million tons per year.
- Maly Kuibas is a producer of iron ore. Production capacity - about 2.4 million tons per year, reserves are enough for another 3-4 years of production.
- MMK-LMZ is a manufacturer of electrolytically galvanized rolled products and rolled products with a polymer coating based on it in the city of Lysva, Perm Territory. Production capacity - 0.35 million tons of products per year.
Steel segment of Turkey. The company has two factories in Iskenderun and Istanbul, merged into MMK Metalurji. The total production capacity of the assets is 2.3 million tons of steel and flat products per year. For many years, only premium products were produced here., since electric steelmaking was stopped back in 2012 due to the high cost. Steel production resumed in 2021.
Coal mining segment. The company mines coal at the Belon and MMK-ugol enterprises in the Kemerovo Region. Reserves are estimated at 277 million tons. Production capacity for production - 5 million tons, for enrichment - 6 million tons. The vast majority of coal is used internally in the production of steel.
MMK's revenue in 2021 by product type
| Hot rolled steel | 46,3% |
| Galvanized steel | 19,4% |
| Long products | 7,5% |
| Pre-painted galvanized steel | 7,1% |
| Cold rolled products | 6,9% |
| Wire, slings, fasteners | 2,0% |
| Hardware products | 1,5% |
| Tinplate | 1,4% |
| steel tape | 1,2% |
| Slabs | 1,0% |
| Coke production | 1,0% |
| Curved profile | 0,7% |
| scrap metal | 0,6% |
| Pipes | 0,5% |
| Coking coal | 0,3% |
| Other | 2,6% |
46,3%
? Key operating and financial indicators
Sales revenue. The company's revenues consist of two components: sales volumes and average selling prices. In the case of steel companies, sales prices are quite volatile, because steel is a commodity. In addition, its price is significantly affected by economic cycles..
The difference between sales revenue and cost of sales is called gross profit.. In order to calculate the net profit, from the gross subtract net operating and financial expenses, including tax payments and one-time items from non-cash revaluation of exchange rate differences and asset values.
Net profit. Allows you to evaluate the final results of activities in monetary terms. The indicator is used when calculating popular multipliers to assess the investment attractiveness of a business.
free cash flow. Difference between operating income and total expenses, except for the payment of a debt. The free cash flow indicator allows you to understand, how much money is left in the company after most expenses, including capital costs. Some companies and, in particular, MMK - use it as a basis for calculating dividends.
Coefficient P / E – the ratio of market capitalization to net profit. Determines, for how long can the company theoretically "recoup" the investor's investments in the issuer's securities.
Коэффициент ROE – the ratio of the company's net profit to its capital. Says that, how efficiently the company uses its capital compared to competitors.
What's changed in the new report
| Revenue ↑ +89% | Growing sales of steel products and excellent steel pricing helped outweigh rising costs |
| Cost of sales ↑ +53% | |
| Operating profit ↑ +307% | |
| Free cash flow ↑ +189% | Operating profit growth outweighed increased capital expenditures |
| Net profit ↑ +425% | Operating profit growth outpaced cost growth |
| Net debt ↓ −359% | Net debt sank even further into negative territory amid growth in cash and cash equivalents |
| Equity ↑ +38% | Retained earnings increased |
Growing sales of steel products and excellent steel pricing helped outweigh rising costs
Dynamics of operating indicators, million tons
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Steel production volume | 12,9 | 12,7 | 12,5 | 11,6 | 13,3 |
| Steel sales volume | 11,6 | 11,7 | 11,3 | 10,8 | 12,5 |
Dynamics of financial indicators, billion rubles
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Revenue | 440,1 | 511,5 | 489,2 | 463,0 | 873,2 |
| Operating profit | 85,0 | 115,0 | 82,6 | 67,9 | 276,2 |
| Net profit | 69,3 | 75,6 | 55,0 | 43,7 | 229,3 |
| free cash flow | 40,5 | 56,8 | 57,0 | 40,8 | 118,0 |
Dynamics of capital expenditures, net debt and EBITDA, billion rubles
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Capital expenditure | 42,1 | 53,6 | 53,9 | 50,4 | 83,1 |
| net debt | −0,8 | −14,1 | −14,6 | −6,5 | −29,9 |
| EBITDA | 118,6 | 146,2 | 116,2 | 107,5 | 315,8 |
Dynamics of key multipliers
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| P / E | 6,75 | 6,36 | 8,53 | 14,3 | 3,39 |
| ROE | 21,6% | 21,8% | 16,2% | 12,9% | 49,0% |
| net debt / EBITDA | −0,01× | −0,10× | −0,13× | −0,06× | −0,09× |
? Why Stocks Can Go Up
Dividends. On the Russian stock market, representatives of the metallurgical industry traditionally offer excellent dividend stories. In Russia, investors are very fond of dividends, so if MMK continues to pay them steadily, then many of them will continue to buy shares of the company.
Good price environment in the world market. The excellent financial results of MMK in 2021 were largely determined by the market conditions: world prices for steel products increased significantly. Inflation in the world does not subside - perhaps, market conditions will continue to help MMK.
Improvements in geopolitics and regulation. If in the field of geopolitics relief begins, this will have a positive impact on the entire market, and on MMK stock quotes. The same goes for regulatory restrictions..
? Why Stocks May Fall
Geopolitics and regulation. MMK shares may fall as with the entire market amid the introduction of new sanctions, possible future mass exit of non-residents from Russian shares, and due to internal restrictions and regulation.
Dependence on market conditions. Metallurgy is a cyclic industry, that is, depending on the economic cycle, the demand for products and prices change significantly. Following them, the financial indicators of metallurgists are changing., dividends and, Consequently, stock quotes. Besides, in the case of MMK, it is worth mentioning the incomplete vertical integration of production. So, at the end of 2020, the company provided itself with electricity at 75%, coal concentrate - 40%, and iron ore raw materials - only 17%. And since, along with steel prices in 2020-2021, raw material prices have also grown significantly, necessary for its production, MMK could not benefit to the same extent from the situation, as competitors better endowed with raw materials.
Potential Dividend Cut. If a company, due to regulatory pressure or changes in the economic situation, starts paying less dividends or adjusts its dividend policy towards less attractiveness, then many dividend investors will be disappointed and will sell MMK shares.
? Dividend policy
The company pays dividends from free cash flow depending on the debt load. If the value of the multiplier is "net debt / EBITDA" less than one, then at least 100% free cash flow. If more, then no less 50%. The company pays dividends on a quarterly basis.
The amount of dividends per share according to the results of the reporting period
| 2017 | 2,786 R |
| 2018 | 5,902 R |
| 2019 | 5,335 R |
| 2020 | 3,943 R |
| 9м2021 | 7,988 R |
2,786 R
? What is important to know right now
Domestic prices for metals will be limited. This will be done as part of the proposed agreement between the Ministry of Industry and Trade and representatives of the metallurgical sector.. This may have a negative impact on MMK's financial performance due to its significant focus on the domestic market..
The EU banned the supply of Russian steel. The reason is another package of sanctions. Directly, this should not greatly affect the MMK: EU share of revenue is low. However, this may negatively affect the company indirectly., as its competitors will start diverting products for the EU to other markets, including in Russian, where will they compete with MMK.
The main shareholder was subject to EU sanctions. Viktor Rashnikov, like many other owners and managers of large Russian companies, included in the sanctions list.
Change of ownership structure. Now Viktor Rashnikov owns MMK not through the Cypriot Mintha Holding Limited, and through the Russian LLC "Altair". Maybe, this is due to the ban on the transfer of dividends on shares to non-residents.
The company continues the cycle of large capital expenditures. According to the presentation for investors, MMK expects even higher increase in capital expenditures compared to the high level of 2021. According to the company's forecast, from 2022 to 2025, their annual size will be about $1.25 billion.
? What we wrote earlier about this company
- MMK's sales grew by a quarter, and the average selling price is almost 50%.
- Bad year for the Magnitogorsk Iron and Steel Works.
- MMK is getting sadder, than competitors. But there, where needed, more fun.
- MMK performed worse than its competitors, but dividends are ok.
- MMK has a weak report on the results of two quarters, but there are signs of market recovery.
- Magnitogorsk Combine hit by falling steel prices. But enough for dividends.
- MMK's production and sales volumes fell in 2019. But there is no reason to panic.
- Revenues of Russian steelmakers are falling, dividends decrease.
- Lipetsk, Magnitogorsk, Cherepovets - who earns more on steel.
- Russian metallurgists sold 10 million tons of raw materials. Product prices are rising.
