OREANDA-NEWS. April 23, 2010. Mechel released FY09 results that significantly outpaced consensus in terms of EBITDA and net income. In 4Q09, company revenue rose 9.3% to USD1.72bn, with EBITDA at USD 682m. FY09 revenue was 2% higher than consensus, reached USD 5.57bn, while for the same period EBITDA was USD 998m, which is 48% above the consensus. Net income amounted to USD 76m., reported the press-centre of OTKRITIE FC.

View: Mechel’s higher-than-expected EBITDA for FY09 came primarily from its mining segment: Mechel’s 4Q09 mining segment EBITDA of USD 644 (which includes a USD 433m gain from remeasurement of contingent obligations linked to the Bluestone acquisition) was higher than mining segment revenue (USD 458m) for the same period. That said, underlying FY09 EBITDA of the company was USD 652.3m, which is slightly lower than consensus expectations.  During a conference call, management guided for plans to increase coal production up to 30mt, 17-18mt of which will be coking coal. These figures are in line with our expectations. We believe the key issue for the company in 2010 remains cost management, as the Mechel is going to almost double its coal output.

Valuation and Action: Although the results underperformed expectations, given the positive outlook on the company, we reiterate our BUY rating for Mechel. Our target price of USD 40.5 implies a 40% upside. Mechel trades on a 2011EV/EBITDA of 5.9x, which is in line with EM peers.