Evraz (LSE: EVR) a penny share? Surely nobody expected that. When I’ve looked at Evraz in the past, one of my main concerns has always been that it operates in Russia. It’s a country with a poor record on transparency, and regulatory bodies could scupper an investment at the drop of a hat. But the Evraz share price, though cyclical, showed long-term gains.
I was so far off the case in thinking that weak trust in regulatory bodies might be the biggest Russian threat. Yes, operating in Russia did turn out to be a big risk. But I never envisaged Russia going to war with Ukraine and being globally ostracised.
Even after a minor rebound, the Evraz share price is now down 85% over the past 12 months, at 80p. But in the first few days of March we were looking at a 90% loss.
Investors clearly fear any sanctions that might be applied to Evraz. Roman Abramovich is the company’s biggest shareholder. As well as him, a number of other Russian oligarchs hold shares.
But against those fears, Evraz this week released an “update on certain matters.” It said that for the purposes of sanctions regulations, it “does not consider itself to be an entity owned by, or acting on behalf or at the direction of, any persons connected with Russia and thereby caught by such legislation.”
That did seem to reassure the markets, and the Evraz share price ticked up a little. But so far, it hasn’t been able to stay out of the penny share range and hold above 100p.
The company did admit that it cannot be certain whether Abramovich and other Russian shareholders are “connected with Russia” for sanctions purposes. So sanctions fears have not gone away. And on Thursday, the UK government decided to sanction Abramovich.
Other than that, Evraz reckons its operations are largely unaffected.
The company has, however, decided that paying the previously declared interim dividend might not be such a good idea in the circumstances. So Evraz has now cancelled that dividend, and will review its approach to future payouts.
Evraz share price too low?
Is the price fall overdone, and is it now a good time for me to finally buy? I’ve been on the fence over Evraz a number of times. I like its cash generation and big dividends. I’ve always liked its business in steel production too, which is a commodity with potentially very strong long-term demand.
Had you told me a year ago that today I’d have the opportunity to buy at an 85% discount, on a penny share price, you would have had my attention. At the same time, though, I’d be wanting to know what the catch was. The catch is obvious, but I’m also held back by ethics. I won’t invest today in what’s essentially a Russian company.
But I’m thinking about a possible time when investing in Russia is ethically acceptable again. And I do think there could be future buying opportunities before the Evraz share price regains its strength.