Today we will talk about the reasons for the fall of shares of the largest Russian metallurgical company - Severstal. We will discuss the prospects for investing in these shares on current marks for the long -term.

The reason for the fall of shares

The reason is very simple - Mordashov and his family members were included in the US sanctions list. And now any interaction of Americans with his companies is prohibited.

Earlier, the EU accepted a similar measure: in addition to Severstal, Deripaska, Rusal, Enel+, Alrosa were included in one sheet. Severstal was a blow due to these sanctions, since the EU amounted to about 30% of the company's exports.

But in fact, the current sanctions did not particularly affect the Business of Severstal, since the sanctions on the ban on import of products of Severstal were already adopted.

That is, Severstal already, so, suffered - her assets were arrested in the EU. And the turnover between America and Severstal has small volumes. Therefore, for the company, the latest sanctions do not play a big role.

Nevertheless, the shares of Seversta fell by already 15%. Perhaps there was still some news or pitfalls. In general, there are great doubts that only at the expense of this news such a fall occurred.

Severstal has fundamental reasons why its shares are reduced - a decrease in production, which will inevitably lead to a decrease in revenue and profit.

Due to the sanctions, our overall power load is reduced. It is assumed that in June there may be simple capacities by 40%.

It is possible that the current news about the introduction of personal sanctions against Mordashov, his family and his businesses became a trigger to a powerful collapse.

Business prospects

Of course, the shares of Seversta are now very cheap (at the 2016 level). Based on technical analysis, Severstal is interesting for purchase (800 rubles is a good entry point, but it is better to wait).

Severstal is an exporter in which the revenue is tied to the dollar. And her expenses, on the contrary, are in rubles. That is, the strengthening of the ruble does not bring benefits for Severstal.

In addition, world prices for steel are reduced. New suppliers came to the European market, and a real estate bubble is slowly blown away in China - the demand for steel is globally reduced. But due to high inflation, a strong drop in the cost of metals in 2023-2024, it will not occur.

Severstal’s situation is very bad: the construction, production and demand for steel, also sanctions and freezing of assets, violations of logistics chains fell (Severstal had a large number of warehouses in the EU).

But Severstal is a quality business with good management. And this crisis company will definitely survive, it is not known only how quickly all this will be restored.

Severstal has the highest margin (pure profitability-35.9%)-3-4 times higher than in American metallurgists.

Also, Severstal has a clear investment policy, according to which only well -recalcore assets are bought. Therefore, business is developing pretty well.

At the balance value of Severstal, Severstal is rated about 2 times cheaper than in previous years. But it should be understood that due to the arrest of assets, the balance value will decrease.

Of course, the shares were not straight cheap, but we can say that they are underestimated. If you buy Severstal shares, then on the horizon of 2-3 years you will make a profit with a probability of 80%.

Severstal has a lot of cache in the accounts. The money that they earned in 2021 remained retained (the company refused to pay dividends).

And with a high probability, in 2023 the company will already pay dividends. Therefore, current quotes are interesting for long -term investors.

Severstal Promotion Forecast

Growth drivers can push Severstal shares to 1100 rubles. Most likely, in the near future, support measures for metallurgists will be announced.

Now the most important thing for the state is to save jobs so that people are not reduced. Because, it is obvious that if the company does not work at full capacity, then problems will begin to arise.

Also, the Russian government in the near future plan to coordinate projects to restore the infrastructure of roads and bridges of the Kherson region.

And since all infrastructure projects are related to metallurgy, this suggests that Severstal will increase the number of orders. Most likely, in July, the restoration of production volumes will begin.

Of course, everything that is now connected with Ukraine has a lot of risks. It is not clear what will happen at all, and whether these territories will be under the control of Russia.

In any case, in the territory, which are part of the DPR and LPR, it is planned to pour large (on roads, bridges).

Thus, the government will support the metallurgical industry. And as soon as support measures are announced, the shares will be shot (possibly 1300 rubles). But this is unlikely in the near future, rather, by the end of 2022.

For today, thanks for your attention!

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