Stock Analysis & Valuation EVRAZ plc (EVR.L)

• Previous Close: £80.89
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	43.80	-46
Intrinsic value (DCF)	5.42	-93
Graham-Dodd Method		n/a
Graham Formula	80.10	-1

Strategic Investment Analysis

Company Overview

EVRAZ plc (LSE: EVR.L) is a leading vertically integrated steel and mining company headquartered in London, United Kingdom, with significant operations in Russia, North America, and other global markets. The company specializes in producing steel and value-added products such as infrastructure steel, rails, large-diameter pipes, and vanadium products, catering to construction, rail, energy, and industrial sectors. EVRAZ operates across four key segments: Steel, Steel (North America), Coal, and Other Operations, ensuring a diversified revenue stream. With a strong focus on vertical integration, EVRAZ controls its supply chain from raw material extraction (iron ore, coal, vanadium) to finished steel products, enhancing cost efficiency and operational resilience. The company's strategic positioning in high-demand markets, including infrastructure and energy, makes it a key player in the global steel industry. Despite geopolitical risks associated with its Russian operations, EVRAZ maintains a robust financial profile, supported by strong cash flows and a diversified customer base.

Investment Summary

EVRAZ plc presents a mixed investment case. On the positive side, the company benefits from vertical integration, strong cash flow generation (GBp 3.42 billion operating cash flow in FY 2021), and exposure to high-growth steel and vanadium markets. Its diversified operations across Russia and North America provide some geographic risk mitigation. However, significant risks include geopolitical exposure due to its Russian assets, volatile commodity prices affecting margins, and high leverage (GBp 3.61 billion total debt). The lack of dividend payouts may deter income-focused investors. While the steel industry is cyclical, EVRAZ's cost leadership and niche products (rails, large-diameter pipes) offer some defensive qualities. Investors should weigh these factors against broader market conditions and regulatory risks.

Competitive Analysis

EVRAZ plc holds a competitive edge through its vertical integration, controlling key inputs like coal, iron ore, and vanadium, which reduces dependency on external suppliers and stabilizes costs. Its specialization in high-margin products such as rails and large-diameter pipes differentiates it from generic steel producers. The company's strong presence in Russia provides access to low-cost raw materials, while its North American operations cater to a stable, high-demand market. However, EVRAZ faces intense competition from global steel giants like ArcelorMittal and Nippon Steel, which benefit from larger scale and broader geographic diversification. The company's reliance on the Russian market also exposes it to regulatory and geopolitical risks, unlike competitors with more balanced global footprints. Additionally, EVRAZ's debt levels are higher than some peers, potentially limiting financial flexibility during downturns. Its vanadium segment is a unique strength, given vanadium's growing importance in energy storage, but this niche market is subject to price volatility. Overall, EVRAZ's competitive positioning is strong in specific segments but faces challenges in scale and geopolitical risk management compared to global leaders.

Major Competitors

• ArcelorMittal (MT.AS): ArcelorMittal is the world's largest steel producer, with a truly global footprint and superior economies of scale. Its diversified operations reduce reliance on any single market, unlike EVRAZ's heavy exposure to Russia. However, ArcelorMittal lacks EVRAZ's specialization in high-margin rails and large-diameter pipes. The company also faces higher operational complexity due to its vast size.
• Nippon Steel Corporation (5401.T): Nippon Steel is a leader in high-quality steel products, particularly for automotive and electronics sectors, giving it an edge in premium markets. Unlike EVRAZ, it has minimal exposure to geopolitical risks in Russia. However, Nippon Steel is less vertically integrated in raw materials compared to EVRAZ, making it more vulnerable to input cost fluctuations.
• POSCO Holdings (PKX): POSCO is a technologically advanced steel producer with a strong focus on innovation and sustainability. Its operations are concentrated in Asia, providing stability compared to EVRAZ's Russian risks. However, POSCO has less control over raw materials than EVRAZ, and its product mix is more aligned with flat steel, lacking EVRAZ's niche in rails and pipes.
• United States Steel Corporation (X): U.S. Steel is a key player in North America, competing directly with EVRAZ's Steel, North America segment. It benefits from protective trade policies in the U.S. but lacks EVRAZ's vertical integration and cost advantages from Russian raw materials. U.S. Steel is also more focused on commodity-grade products, missing EVRAZ's high-margin specialized offerings.
• Novolipetsk Steel (NLMK) (NLMK.ME): NLMK is another Russian steel giant with low-cost raw material access, similar to EVRAZ. It competes directly in the Russian and export markets but lacks EVRAZ's strong presence in North America. NLMK has a more diversified product portfolio but does not match EVRAZ's leadership in rails and vanadium products.