Key points
- Evraz’s largest shareholder is Chelsea FC owner Roman Abramovich
- The company’s operations could be hit by sanctions against Russia
- But this FTSE 100 stock might be a high-risk bargain
Russia’s invasion of Ukraine triggered massive falls for Russian firms listed on the London Stock Exchange. The biggest of these fallers was Roman Abramovich’s steel company Evraz (LSE: EVR), whose share price fell by 70% in February.
There’s a lot of uncertainty about whether the company’s operations outside Russia and its UK stock market listing will be affected by sanctions. Here, I’ll explain why the Evraz share price has fallen so hard and if I’d consider buying the shares.
Strong numbers
Evraz issued its 2021 results last week, but these strong numbers were overshadowed by the invasion of Ukraine. Even so, I think they’re worth a quick look.
Total revenue rose by 45% to $14,159m in 2021 at this coal, iron ore and steel group. Net profit rose by 262% to $3,107m and Evraz generated more than $2bn of surplus cash.
Shareholders received a total dividend of $1.25 per share, or around 90p. With the Evraz share price at around 150p, that’s equivalent to a whopping 60% dividend yield. This isn’t normal — the market is pricing this stock as a high-risk situation.
Risk versus reward
I’ve previously been attracted to Evraz because it’s a relatively low-cost producer with good cash generation. When times are good, the group pays very generous dividends.
Last week’s slump has left Evraz stock trading on just two times forecast earnings. According to broker forecasts, the stock could offer a 50% dividend yield for 2022. However, in a special situation like this, it’s even more important than usual for me to consider the risks. What could go wrong next?
I can see a range of possible problems. One is that Evraz’s exports outside Russia could be restricted. I’d guess Chinese sales would be safe, but the group’s operations in the US and Europe might be affected. Profits could slump, although I think it would be manageable.
Evraz share price: why I’m not buying
The biggest risk I can see for UK shareholders is that Evraz will delist its shares and move to a single listing on the Moscow Stock Exchange.
This might not be a big problem for the group’s controlling shareholders. These include Chelsea FC owner Roman Abramovich, who owns 29% of Evraz. Abramovich and four others control 66% of Evraz stock. My guess is that they’d be able to maintain their ownership and continue receiving dividends if Evraz moved to the Moscow Stock Exchange.
However, UK shareholders probably wouldn’t be able to own Moscow-listed shares. As a result, they could be forced to sell at a very poor price when the stock was delisted.
For me, this is probably the biggest reason for last month’s share price falls. I’m pretty sure Evraz will survive, but UK shareholders could be forced to sell at rock bottom prices.
This risk is impossible for me to measure, but it could do serious damage to my wealth. For this reason, I’m not going to buy Evraz shares, however cheap they might look.
