Evraz (LSE:EVR) shares are down almost 10% today, making it the worst performing stock in the FTSE 100 index. By trading at 253p, the share price is now down just over 50% in a one-year period. Unfortunately, the crisis with Russia and Ukraine is the main reason pulling the price lower in the short term.
Evraz shares falling on heightened tensions
Evraz is a manufacturing and mining company listed in the UK. However, most of its operations are in Eastern Europe. Notably, Russia and Ukraine are two countries where it has a presence. The main elements mined are coal and iron ore.
Even without diving into any more detail, it’s clear to see why investors are worried at the moment. In the news this week, Russia’s President Putin has acknowledged two states in Eastern Ukraine as independent. Russian troops have been sent in to these locations, on peacekeeping orders. Ultimately, this has raised tensions between Russia and Ukraine.
As an ally of Ukraine, the UK has announced sanctions over the past day on Russian banks and some oligarchs. For Evraz, the company is stuck between a rock and a hard place. Even without any direct sanctions on the company, it’s going to be difficult to operate in coming months. Distribution and movement of resources in and out of Eastern Europe will be tricky. The business might also have pressure placed on it by respective governments.
Aside from Evraz shares falling on potential operational issues, the ownership structure is worth noting. Roman Abramovich owns 28.64% of voting rights, with Alexander Abramov owning 19.32%. Both are powerful Russians who could be placed on sanctions lists by other countries. Even though this wouldn’t directly impact Evraz, it could cause reputational damage to the company.
An undervalued gem?
One point that has always attracted me to Evraz shares has been the dividend yield. As I wrote about recently, the yield is too high to ignore, but doesn’t come without risks. At the moment, the yield is 32%, easily the highest in the FTSE 100. The reason for this is the fact that Evraz shares have been falling. The dividend per share has remained broadly the same, but the falling share price has artificially pushed the yield up.
It’s a really tough one to call right now as to whether I should invest or not. On the one hand, I do think that the market is undervaluing Evraz as a business based on it’s fundamental operations. Yet I do acknowledge that revenue could dry up very quickly if restrictions are imposed or the mines aren’t operational due to a conflict.
Given my personal take on things, I’d be happy to allocate a small amount of money to Evraz shares at the moment, but hold on to the bulk of my free cash. I don’t think it’s worth investing a large amount in something so unpredictable right now.
