OREANDA-NEWS. December 10, 2009. Mechel reported its 3Q09 US GAAP results with its numbers coming broadly in line with our expectations and the consensus. Revenue reached US1.57bn (6% below our forecast and consensus estimates), while EBITDA climbed to US 263m (we anticipated US 286m). Having said that, the quality of earnings was relatively poor as operating profit was distorted by another inventory write-down—subtracting this amount reduces EBITDA to US 192m., reported the press-centre of OTKRITIE FC.

This has been also mirrored by poor cash flow generation as net operating cash flow for the quarter was negative (-US 78m). At the segment level, the biggest disappointment was the mining business, while other segment performances did not bring major surprises. As expected, the company reported a drop in short-term debt to US 2.1bn, however overall net debt increased to US 5.2bn. We believe that this figure will rise due to ruble bond placements.

View: Mechel has not been delivering impressive results, which has been reaffirmed by its weak 3Q09 figures. Going forward, the company should continue benefiting from higher coking coal prices and sales, which will drive earnings upwards in 4Q. Investors should continue discounting potential earnings shortfalls.

Valuation & Action: We do not see any clear drivers behind the stock at the moment, since in our view the recovery in prices and production volumes has essentially been discounted by the market. The stock does not look cheap, trading on a 2010E EV/EBITDA of 6.3x.