Steppe Cement Share Discussion Threads

[wilo101] 13/6/2021 02:18

The dividend would have been more, but of course under Kazakh law the two main aset-owning and operating companies, in-country, JSC Central Asia Cement (owns the old 5 wet lines and all other mines, quarries and assets) and JSC Karcement (owns the two dry-lines)could only pay dividends to Steppe Cement Holdings BV, onwards to the Malaysian holding company, and then onwards to Labuan where STCM itself is incorporated, and then to ADR holders under the tax efficient holding structure in place since 1994, could not pay more than their net profits in Kazakhstan, which net profits were impacted by the devaluation of the Kazakh Tenge given the inter-company loans in place.

[mattjos] 10/6/2021 20:44

Absolutely no problem with some gearing (in the form of railcar, asset-backed borrowings) particular attention the subsidised rates they manage to achieve.The company has consistently said they they have to hire railcars during the year .. that is non-sensical if the hiring is persistent each year. Further investment in bagging and loading plant ... higher margin bagged product & improved productivity when loading.The company is in great shape and being run very, very prudently.

[eggbaconandbubble] 10/6/2021 17:34

elpirata, unfortunately my keyboard doesn't do Cyrillic!

[eggbaconandbubble] 10/6/2021 17:31

Constable Ken, keep licking yer pencil chum. One day it might just work.

[king suarez] 10/6/2021 16:58

Aleman, you could be right, though I don't see the (reserves) position has changed materially from 2019? I don't understand the company structure and intercompany subsidiary investment and loan either, not that it is of particular concern - nice to see it is a net positive on the balance sheet anyway, even if just an accounting treatment!

Constable Ken and Wilo101 you are both right in a sense. The COMPANY has no long term debt, since that has all been repaid, what it does have is debt attached to the rail wagon investments - if STCM reneged on that debt, the creditors could confiscate the rail wagon assets, but not come after the company itself to recover the debt - at least that is my understanding and why you both give the opposite argument - correct me if I am wrong? The company also has a seasonal short-term credit facility that it draws from and repays during the year, to facilitate cash flow during the busier periods.

[constable ken] 10/6/2021 16:32

They're at a loss to know how to communicate with someone who thinks no net debt means no debt.

[elpirata] 10/6/2021 16:06

did you correspond in Kazakh?

[eggbaconandbubble] 10/6/2021 16:02

Steppe Cement investor Relations don't reply at any emails!

[aleman] 10/6/2021 13:32

Is it something to do with Retained Distributable Reserves of the Company - not the Group? Whilst the Group has loads of distributable reserves (pages 38+39), the Company has paid out almost all it could in the last two years. (See Page 40.) I often find it hard to work out how the interaction works when you get these accounts with both Company and Group numbers.

h ttp://www.steppecement.com/images/pdf/stcm_ar_2020_web.pdf

[eggbaconandbubble] 10/6/2021 12:35

Technobabble!

[king suarez] 10/6/2021 11:34

Thanks, Wilo101,

Can anyone explain/elaborate on what this means?

"the FY20 DPS could have been higher, we think. However, the decision was likely impacted by technical intracompany limitations."

'intracompany limitations' ??

[wilo101] 10/6/2021 11:18

Steppe Cement
2020; no surprises, solid outlook
Steppe Cement’s 2020 results did not produce any major surprises,
although the announced FY20 dividend of GBp 2.5 (4.8% yield) was
below our projection (GBp 4). This potential dividend disappointment
might have been behind Steppe Cement’s price decline of 10% on
Monday. However, we think that such a dividend was due to technical
limitations, while Steppe Cement remains committed to maximising
distributions. The positive market trends and cash availability point to a
strong case for higher dividends. Having updated our model, we are
increasing our 12-month Target Price 15% YoY to GBp 54 (ETR of 25%,
including a 10% DY over the next 12 months). Buy reiterated.
FY20: good numbers. While Steppe Cement had already disclosed its 2020
revenues of USD 75mn (down 6% YoY), its FY20 EBITDA of USD 23mn was
down 4% YoY (6% below our estimate). Meanwhile, net profit increased 15%
YoY to USD 11mn and exceeded our expectations by 2%. Net debt stood at
USD 2.5bn as of the end of 2020 vs. USD 7.8mn at the end of 2019 and our
forecast of USD 6.4mn. This implies net debt/EBITDA of just 0.1x.
FY20 DPS: below expectations, but hardly a policy shift. Steppe
Cement’s FY20 DPS of GBp 2.5 is notably below our expectations of GBp 4
(the company also paid an interim dividend of GBp 1 in November 2020).
From the cash availability perspective, the FY20 DPS could have been
higher, we think. However, the decision was likely impacted by technical
intracompany limitations. Nevertheless, we think that Steppe Cement
remains committed to distribute all excess cash as dividends. Given the
positive current trends and outlook, we expect the interim and FY21 dividend
to exceed the 2020 levels.
Forecast revisions. We think that the outlook for cement demand in
Kazakhstan remains favourable. We forecast that cement consumption will
increase 6% YoY to 9.9mt in 2021F, partly underpinned by the government
programmes aimed at boosting residential construction. In particular, the
government is targeting an increase in residential completions of 11% YoY to
17mn sqm in 2021 (after the 17% YoY growth to 15.3mn in 2020). We also
note that Kazakhstan’s average cement prices rose 6% YoY to KZT 18,854/t
as of May, according to the National Statistics Bureau. These trends underpin
our forecast revisions. We increased our revenue forecasts 6-7% YoY and
EBITDA projections 7-10% YoY. We now expect Steppe Cement’s revenues
and EBITDA to increase at 2020-25F CAGRs of 3% and 4%, respectively.
Valuation and risks. We derive our 12-month Target Price from a DCF
model (WACC 13.8%, TGR 0%). We reduced the discount rate from 15% to
13.8% to reflect the lower cost of debt for Steppe Cement. The key downside
risks are lower dividends, ‘irrational217; pricing by competitors, and potential
overcapacity in Kazakhstan and the neighbouring countries, as well as the
overall macro environment and cement market trends.

[aleman] 08/6/2021 18:38

Ah ... thanks again for the time you have taken.

[king suarez] 08/6/2021 18:18

Hi Aleman,

My argument is that your $2.7m net debt improvement actually becomes $3.5m if you exclude the ($0.8m) FX loss on bank deposits (which isn't really a cash movement, just a translation of foreign denominated deposits into USD unfavorably due to exchange rate movements in year - could easily work in our favour in future).

So, all else equal, the company has/had $3.5m headroom above the $11.5m (4p) dividend paid. On top of that is the extra $1m paid in tax v the tax charge for 2020 (perhaps just a one-off due to temporarily lowered tax because of Covid though?).

Looking at the 2021 final dividend, with the current exchange rate it is looking like each penny dividend costs c$3m, so you take that $3.5m in a year in which debt has been reduced to zero and you have another penny to add to the 4p that was paid in 2020 - and that is without any output/efficiency improvements that the Capex should bring.

It seems to me that with only a 3.5p FY 2021 dividend (perhaps?) and the additional debt taken on at year end and in February, there is a lot of headroom for capex spending, so it will be interesting to see what can be achieved with that this year. Alternatively, we might see the interim dividend bumped up a little..

[aleman] 08/6/2021 17:55

KS - My apologies. I somehow managed to quote the one bit where they switched into Sterling as $s. 4p on 219m shares is £8.8m, to confirm. You correctly point out that dividends paid in dollars were $11.5m. As net debt still falls $2.7m, that's still $2.7m that was left over after funding the dividend, though as a % of the dividend, that headroom is a bit smaller than in my original mistake. Your point about forex changes meaning that headroom might not be as great is interesting. I'll have to think about that. I do find accounts from companies in foreign currencies that translate into $s rather than £s take a bit longer to get my head around. Thanks.


NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2020

Dividends paid

During the year, the Company paid a first and final dividend of GBP0.03 (2018: GBP0.03) per ordinary share of no par value each amounting to GBP6,570,000 (USD8,678,970) in respect of financial year ended 31 December 2019 (2018: GBP6,570,000 (USD8,389,233)).The Company also declared and paid an interim dividend of GBP0.01 amounting to GBP2,190,000 (USD2,830,356) during the year. No interim dividend was declared in the previous financial year.

Dividends proposed after reporting period

The board of directors of the Company proposed a final dividend of GBP0.025 per ordinary share of no par value each amounting to GBP5,475,000 (USD7,472,828) in respect of the financial year ended 31 December 2020. The proposed dividend is subject to approval by the shareholders of the Company at the forthcoming Annual General Meeting, and if approved, will be accounted for in equity during the financial year ending 31 December 2021. The dividends have not been recognised as a liability as at 31 December 2020.

[king suarez] 08/6/2021 17:25

The net cash change was almost zero if you exclude the effect of FX revaluation on bank deposits.

Net operating cash flow was $22.7m, from which $2.2m net of borrowings were paid down and $2m of lease liabilities. The company also paid $2.9m in income tax in 2020, with the tax charge only being $2.0m - presumably paying 2019 taxes, so next year might be lower. Dividends of 4p were paid in the calendar year (though only 3p related to the accounting year - 1p was the 2020 interim) costing $11.5m, not $8.8m(?), $1.2m paid in financing costs and c$3m spent on Capex.

Due to the expansion of Capex for next year, which sounds promising, and should help improve/maintain margins, I now don't expect a dividend increase in the short-term.

Sooner or later, with borrowings completely done, there will be an additional c$3.5m freed up, maybe more, if these additional rail wagons reduce lease costs? That is based on 2020 numbers, where production was down a little due to unplanned maintenance.

4p dividend cost $11.5m, so there will be room to grow it to 5p per annum fairly comfortably within the next year or two, maybe higher depending on the impact of the capex spending on efficiencies and output - my thoughts.

[aleman] 08/6/2021 16:45

From statement of cashflows on Page 43:

Cash and equivalents fell from $9.0m to $8.2m while borrowings fell from $10.3m to $6.8m - so I make net debt of $1.3m became net cash of $1.4m, and improvement of $2.7m (or thereabouts as rounding might move that marginally).

Note 19 indicates that happened while paying $6.6m and $2.2m in dividends of 3p and 1p (in July and November), so $8.8m was spent on dividends as the net debt/cash position improved by $2.7m.

H ttp://www.steppecement.com/images/pdf/stcm_ar_2020_web.pdf

So the 4p of dividends paid seemed well enough covered by cashflow. The Q1/2021 update that preceded these results sounded pretty strong, so one would hope H1/2020 is going to be rather better than H1/2020. Given a flagged increase in capex spend, will that allow a dividend rise or not for the full financial year? Well, a slight reduction to 2.5p for the 2020 final is going to be paid in July(?) . We'll just have to see if net cash continues to increase and allow a higher interim to be paid in November.

[eggbaconandbubble] 08/6/2021 12:57

It’s a cash cow and other companies do like to buy cash generators cos it’s an easy peazy way to increase revenue, especially if their accounts are looking a bit weak!

[xenomorph1] 08/6/2021 09:50

Debt is maybe not zero but NET CASH/DEBT position is important. The company has more cash than debt and thats what really matters! For my, the only downside is that they are producing at cca. 90% of capacity and there is not much room for growth in revenues, except if prices go up or acquisitions/new businesses. Correct me if im wrong.

[wilo101] 08/6/2021 09:46

Debt is effectively zero down from the peak of US$95m prior to the 3 fully underwritten rescue rights issues in 2009 onwards, given the cash the Group has, generates and maintains -it just chooses to keep the DAMU Loan as it is subsidised at 6% in KZT by the Kazakh Government, and who can look such a gift-horse in the mouth....wagons and railways are really a business within a business and a profit-center in their own rights.

[meathed] 08/6/2021 09:33

His comments are not totally correct. I suggest you re-read the CEO statement and / or the statement of financial position, both of which clearly state that debt is not zero.

[andydaf] 08/6/2021 08:58

Wilo your comments are totally correct,if you read the annual report you can see how COVID affected them,people should check the major shareholders and the ceos pay and lack of share options,look at the assets and value them accordingly,long term this company will grow,I buy these for my sipp and sleep well at night best regards