Shares of metallurgical companies reacted positively to the news about the possible dividends of Severstal

Shares of ferrous metallurgy companies reacted positively to the news about Severstal’s possible dividends. Previously, issuers from this sector regularly paid income to shareholders on the back of stable export sales. However, the sanctions have weighed heavily on their business, and most companies this year are refusing to pay. Experts note that although the market reacts positively to news about dividends, it is still difficult to predict the realism and timing of payments.

At the auctions of the Moscow Exchange on June 19, shares of ferrous metallurgy companies (Severstal, MMK, NLMK) were among the growth leaders. Their quotes rose by 4.5-7%, while the MOEX index fell by 0.3% over the day. However, the shares of metallurgists are traded only near the values ​​of the end of March-beginning of April last year, that is, at the level that prevailed after the outbreak of hostilities in Ukraine. A number of “blue chips” – Sberbank, Rosneft – largely won back the fall of 2022, and their stock quotes are at the February values ​​of last year.

The growth of shares of metallurgical companies is connected with the statements of Severstal CEO Alexander Shevelev that “the dividend respite will not last forever,” believes Arikacapital’s strategist Sergei Suverov. This gave an incentive for the growth of securities, especially since with the loading of steel companies “everything is fine”, it is close to 100% with an emphasis on supplies to the Russian market, the expert adds.

Capital Lab partner Evgeny Shatov admits that “investors usually react to such informational occasions,” but in reality the situation may be “not so positive.” The stocks of the ferrous metallurgy sector “traditionally were dividend aristocrats in the Russian market, as they were mainly focused on the export of their products,” the expert explains. In particular, in previous years they actually paid dividends on a quarterly basis. But after the imposition of sanctions, metallurgists lost the premium European market and were forced to redirect 7 million tons of steel, which accounted for about a quarter of its exports from the Russian Federation, Mr. Shatov emphasizes. In addition, restrictions were introduced on the supply of equipment and components for the industry.

As a result, steelmakers refused to pay dividends for 2022. Moreover, at the end of last year, NLMK’s board of directors proposed to pay dividends, but the majority of shareholders decided not to do this.

However, metallurgists have already adapted to the situation, and their production was largely reoriented to defense orders or supplies to friendly countries, Mr. Shatov believes. The Ministry of Industry and Trade estimates the export of Russian ferrous metallurgy products at 1.75 trillion rubles. at the end of this year, while last year it amounted to 1.97 trillion rubles. So far, metallurgists are forming a safety cushion, since the transformation process has not yet been completed and they need confidence regarding stable sales and equipment supply, the expert believes.

Ferrous metallurgy enterprises are among the beneficiaries of the devaluation of the ruble, adds Anna Avakimyan, chief analyst at Regblok. “Issuing metallurgists seek to hedge two risks at once – the currency risk and the risk of structural fluctuations in demand due to sanctions. In this regard, the exposure on dividends has not yet fully demonstrated its potential,” she notes.

Dmitry Alexandrov, managing director of Ivolga Capital, clarifies that the stock market as a whole after the failure of last spring showed impressive growth and, in fact, has not been significantly corrected since October last year. The most obvious ideas on the market, such as the shares of Sberbank and Rosneft, although they retain their potential, largely won back both the growth of quotations and impressive dividends, he believes. This leads to the fact that investors start looking for less advanced assets in the hope that they will repeat the success of the market leaders. However, in Mr. Alexandrov’s opinion, there are no clear ideas in the shares of ferrous metallurgy companies, low levels are more likely to be fair regarding difficulties in logistics and the loss of a significant part of the companies’ consumers.

Ksenia Kulikova