OREANDA-NEWS. August 3, 2011. Evraz announced today (3 Aug) that it has increased its EBITDA forecast for 2Q11 from the earlier USD 750-825mn to USD 875-950mn on the back of stronger steel prices in 2Q. The company noted that the effect of higher iron ore and scrap costs should be felt in 3Q with negative consequences for margins.

According to company data, total debt as of 30 June 2011 reached USD 7.4bn while its cash position was USD 1.1bn, bringing net debt to USD 6.3bn. As a result, the net debt/EBITDA ratio has been in a range of 2.18-2.25x this year, below the threshold imposed by debt covenants. Evraz also said it is considering listing alternatives for its current GDR programme.

Bottom line

While the upward revision of Evraz’s EBITDA guidance could be taken as marginally positive, it looks more neutral to us given the difficult market situation. The threat of costs weighing on profitability is still in place, which should be reflected in 3Q and 4Q on the back of seasonally weaker sales volumes. We believe Evraz would be well advised to expand its GDR programme as it needs to broaden its investor spectrum, with Russia or Asia both offering good prospects.