(Alliance News) - Moody's Investors Service upgraded the outlook on its Ba1 credit rating for Evraz PLC to Positive from Stable amid confidence it would maintain "strong" financial metrics despite a tough market.
The credit analyst explained steelmaker Evraz is now expected to "maintain its strong financial metrics despite the volatility in steel and coking coal prices."
In particular, Moody's forecast Evraz would "retain healthy liquidity, and continue to pursue balanced financial and dividend policies amid its increased capital spending and risks that persistent international trade disputes will undermine global demand for steel and commodities."
For 2018, Moody's explained Evraz had paid out USD1.70 billion in dividends which is equivalent to USD1.94 billion of its pre-dividend cash flow during the year. Although viewing this 88% dividend payout level as "high", Moody's noted that its largest Russian peers paid out around 100% of cash flow in 2018.
Moody's argued that the comparatively modest payout by Evraz reflected an "adherence to balanced dividend policy." Consequently, Moody's "expects Evraz to reduce its dividend amount if its pre-dividend free cash flow were to decline in a weaker market environment."
The outlook change also follows forecasts by the credit analyst that profitability at the North American operations of Evraz will "materially improve" after the removal of a mutual 25% steel import tariff between the US and Canada.
Moody's forecast earnings before interest, taxes, depreciation and amortisation margin for the US and Canada business in 2019 to widen to between 5% and 6% from less than 1% the year prior. Meanwhile, the Ebitda share of the US and Canadian operations to overall profit is forecast to jump to 5% in 2019 from less than 1% in 2018.
Shares in Evraz were 4.2% lower at 625.50 pence in London on Friday.
Evraz (EVR)