Evraz Leads Metal Slump as Citi to Barclays Cut: Moscow Mover
Evraz Plc (EVR) slid the most in more than two weeks as Citigroup Inc. and Barclays Plc lowered their recommendations on Russia’s largest steelmaker by output, citing the outlook for the commodity in the nation.
Evraz fell 1.6 percent, the most since Aug. 30, to 137.70 pence at the close in London, snapping a nine-day rally, the longest streak since 2011. Citigroup downgraded the shares to neutral while Barclays cut the stock to the equivalent of sell. Both banks lowered their ratings on Russia’s steel industry to neutral on concern a recovery in prices won’t be sustainable.
For the sector to rise, “global steel prices need to move up, or investors need to reassess their negative view of the Russian domestic market,” Moscow-based Citigroup analysts Barry Ehrlich and Nitesh Agarwal said in an e-mailed report today. “We expect global steel to be at best flat at year end.”
Shares of Evraz have tumbled 52 percent in the past 12 months, compared with a 20 percent decline for OAO Novolipetsk Steel in London. Steel-industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on prices. Citigroup expects Evraz’s earnings before interest, taxes, depreciation and amortization to drop by $120 million in the second half compared with the first six months of the year, the worst performance in the Russian steel industry, according to today’s report.
Barclays lowered the stock’s price estimate to 122 pence from 204 pence, according to an e-mailed note today. Elevated leverage, strong integration into iron ore, as well as exposure to the long steel market in Russia triggered the change, according to London-based analysts including Vladimir Sergievskiy.
“Given that it is not particularly cheap, we see few reasons to have exposure to Evraz under current industry conditions,” the Barclays analysts said. The stock had gained 11 percent in the nine days through Sept. 16, closing at the highest level since May.
Russian steelmaker Novolipetsk dropped 0.7 percent to $17.38 in London today. Barclays cut the stock to the equivalent of sell, citing an unfavorable earnings momentum. OAO Severstal, the nation’s second-biggest steelmaker, lost as much as 1.6 percent in Moscow before closing 0.4 percent lower at 297.2 rubles. The shares retreated 0.3 percent to $9.225 in London after Citigroup lowered the stock to neutral from buy.
Polymetal International Plc (POLY), the Russian gold and silver miner part-owned by billionaire Alexander Nesis, declined 0.6 percent to 655.50 pence in London and 2.5 percent to 341.25 rubles in Moscow. Barclays downgraded the stock to the equivalent of sell from buy, citing a rally in the shares and limited growth prospects.
“Given the fairly low level of visibility on steel prices, and the fact that overcapacity issues are not going anywhere, we expect shares to remain largely driven by short-medium-term prices/earnings cycles,” the Barclays analysts said.
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