Ruukki Group (RKKI.L) Investec Securities Price: 38.3p | Target: 82.0p | Rec: Hold Although ferrochrome market conditions have not improved, RKKI has maintained positive momentum by delivering another relatively good quarter, which has given it the confidence to upgrade its own FY12 expectations.

Operating cash flows were significantly improved, both on the 1Q12 and on 2Q11, and RKKI ended the period with a comfortable €45.0m in cash and liquids, even after the recent €25m investment in EWW. * RKKI reported 1H12A EBITDA of €6.7m (€1.4m in 1H11A).

Net income was a loss of €4.3m (versus LFL loss of €18.4m).

* Operating cash-flows in the 2Q12 showed a significant improvement on the 1Q12, with RKKI generating €13.5m from operations, up from €1.6m in 1Q12.

This resulted in 1H12A operating cash flow of €15.2m compared to outflows of €2.0m in 1H11A.

* While RKKI had previously indicated that it expected FY12 financial performance to be comparable to FY11A, it now expects an improved FY12 performance, as it benefits from cost efficiencies and improved FX rates.

Post the 1H12A, we have adjusted our assumptions slightly, lifting our FY12E EBITDA from €6.4m to €8.7m.

We note that the 2H is traditionally a weaker earnings period, relative to the 1H, as production is impacted by the winter furnace shutdowns (to avoid higher electricity tariffs) and by the December holiday period. * RKKI remains attractively valued in our view and the improved operating performance is encouraging.

Immediate investment appeal is, however, limited by the subdued near term outlook for stainless steel making products.

Our robust earnings growth forecasts are reliant on improved pricing and an attendant lift in production.

Our TP is underpinned by a risked NPV, but we retain a Hold until we can see evidence of a turnaround in market conditions. To access the full note please click here Analyst: Hunter Hillcoat To receive further information or change your Research Preferences please email: South Africa or United Kingdom IMPORTANT NOTICE: This communication forms part of an electronic communication sent to the intended recipient (or such persons authorised representative) for their sole use and is subject to important legal and regulatory restrictions, qualifications and disclaimers ("the disclaimer") that may be accessed and read by clicking on the following hyperlink:http://www.investec.co.uk/about-investec/what-we-do/investment-banking/investec-securities/company-research/morning-meeting-comments.html or copying the address into your Internet browsers address bar.

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