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Alrosa – BUY
Renaissance Capital
6 February 2019
Metals & Mining
Figure 78: Alrosa, RUBmn (unless otherwise noted)
Alrosa |
|
ALRS.MM |
|
|
|
Market capitalisation, RUBmn: |
|
733,880 |
|
|
|
Enterprise value, RUBmn: |
|
834,992 |
|
|
|
|
|
|
|
|
|
Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
Income statement |
|
|
|
|
|
Revenue |
317,090 |
275,381 |
300,214 |
303,893 |
328,867 |
Adjusted EBITDA |
176,418 |
126,890 |
161,179 |
149,947 |
163,197 |
Adjusted EBIT |
151,750 |
103,098 |
137,960 |
124,486 |
137,179 |
EBIT |
142,965 |
99,083 |
139,042 |
124,486 |
137,179 |
Net interest |
24,124 |
-1,320 |
-11,951 |
-5,381 |
-5,496 |
Taxation |
-36,268 -22,174 |
-27,628 |
-26,203 |
-28,970 |
|
Equity accounted income |
2,650 |
3,027 |
3,681 |
3,665 |
3,795 |
Net profit for the year |
133,471 |
78,616 |
103,144 |
96,566 |
106,507 |
Minority interest in profit |
-2,079 |
-1,541 |
-2,078 |
-1,931 |
-2,130 |
Attributable net profit |
131,392 |
77,075 |
101,066 |
94,635 |
104,377 |
EPS, RUB |
17.85 |
10.47 |
14.07 |
13.13 |
14.48 |
Thomson Reuters consensus EPS, RUB |
|
|
14.22 |
15.41 |
16.24 |
DPS declared, RUB |
2.09 |
8.93 |
16.68 |
12.55 |
13.55 |
Adjusted EBIT |
|
-0.41345 |
|
|
|
|
|
|
|
|
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Diamonds |
205,235 |
132,879 |
170,470 |
164,432 |
180,085 |
Transportation |
933 |
1,298 |
1,865 |
794 |
855 |
Social infrastructure |
-5,559 |
-3,537 |
-3,661 |
-6,709 |
-7,263 |
Other (SG&A, other expenses) |
-48,859 |
-27,542 |
-30,714 |
-34,031 |
-36,499 |
Income statement ratios |
|
|
|
|
|
EBITDA margin |
56% |
46% |
54% |
49% |
50% |
EBIT margin |
45% |
36% |
46% |
41% |
42% |
EPS growth |
328% |
-41% |
34% |
-7% |
10% |
Payout ratio |
12% |
85% |
119% |
96% |
94% |
Input assumptions |
|
|
|
|
|
Rough diamond index, $/ct |
197 |
198 |
202 |
202 |
208 |
Alrosa average gem realisations, $/ct |
150.1 |
135.4 |
161.1 |
148.2 |
156.1 |
Gem realisations vs. index prices |
76% |
68% |
80% |
73% |
75% |
Alrosa average industrial realisations, $/ct |
8.5 |
7.6 |
8.2 |
5.6 |
5.8 |
Alrosa average realisations, $/ct |
110.8 |
101.0 |
114.4 |
105.4 |
111.0 |
RUB/$ |
67 |
58 |
63 |
67 |
68 |
All in cash costs, net of by-products |
|
|
|
|
|
Estimated required breakeven price, $/ct |
128 |
148 |
134 |
147 |
147 |
Production volumes, kct |
|
|
|
|
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Diamonds |
|
|
|
|
|
Aikhal division |
12,228 |
13,010 |
11,850 |
9,622 |
8,430 |
Mirny division |
7,808 |
7,231 |
4,196 |
3,908 |
3,655 |
Udachny division |
3,167 |
3,821 |
3,932 |
6438 |
7514 |
Nyurba division |
6,793 |
7,713 |
7,721 |
9,060 |
7,737 |
Severalmaz |
2,217 |
2,642 |
3,590 |
3,851 |
4,198 |
Almazy Anabara & Nizhne-Lenskoye |
5,145 |
5,197 |
5,420 |
5,091 |
5,071 |
Other production |
0 |
0 |
-6 |
0 |
0 |
Total |
37,358 |
39,614 |
36,703 |
37,970 |
36,605 |
Sales volumes , kct |
|
|
|
|
|
Gem-quality |
28,900 |
30,100 |
26,400 |
26,950 |
27,300 |
Industrial |
11,100 |
11,100 |
11,600 |
11,550 |
11,700 |
Total |
40,000 |
41,200 |
38,000 |
38,500 |
39,000 |
Balance sheet |
|
|
|
|
|
Net operating assets |
340,325 |
352,534 |
268,057 |
271,780 |
268,937 |
Equity |
257,202 |
266,825 |
221,213 |
225,364 |
232,075 |
Minority interest |
-232 |
-338 |
-1,251 |
-1,058 |
-845 |
Net debt |
83,355 |
86,047 |
48,095 |
47,474 |
37,706 |
|
Target Price, RUB: |
|
|
109.0 |
||
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Share price, RUB: |
|
|
99.5 |
||
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Potential 12-month return: |
|
22.5% |
|||
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|
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Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
Balance sheet ratios |
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|
|
|
|
|
Gearing (net debt/(net debt+equity)) |
24.5% |
24.4% |
|
17.9% |
17.4% |
14.0% |
Net debt/(EBITDA+dividends from associat |
0.5x |
0.7x |
|
0.3x |
0.3x |
0.2x |
RoCE |
40.0% |
27.4% |
|
39.1% |
37.6% |
40.9% |
RoIC (after tax) |
35.8% |
17.6% |
|
29.9% |
29.5% |
32.0% |
RoE |
65.3% |
30.0% |
|
42.3% |
43.2% |
46.6% |
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
143,138 |
100,464 |
|
149,741 |
129,038 |
130,806 |
Capex |
-31,752 |
-26,944 |
|
-31,600 |
-28,500 |
-28,000 |
Other FCF |
0 |
0 |
|
30,801 |
0 |
0 |
FCF |
111,386 |
73,520 |
|
148,942 |
100,538 |
102,806 |
Equity shareholders' cash |
134,076 |
63,014 |
|
132,774 |
94,710 |
96,712 |
Dividends and share buy backs |
-14,775 |
-65,706 |
|
-94,823 |
-94,089 |
-86,945 |
Surplus (deficit) cash |
119,301 |
-2,692 |
|
37,952 |
621 |
9,768 |
Cash flow ratios |
|
|
|
|
|
|
Working capital days |
104 |
145 |
|
108 |
104 |
103 |
Cash conversion |
1.0x |
0.8x |
|
1.3x |
1.0x |
0.9x |
FCF yield |
17.3% |
10.1% |
|
20.3% |
13.2% |
13.6% |
Equity shareholders' yield |
23.9% |
9.8% |
|
19.4% |
13.2% |
13.5% |
Capex/Adjusted EBITDA |
18.0% |
21.2% |
|
19.6% |
19.0% |
17.2% |
Valuation |
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SoTP DCF valuation and calculation of target price |
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|
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RUBmn |
RUB/sh |
|
Diamonds |
|
|
|
|
1,004,375 |
139.3 |
Transportation |
|
|
|
|
7,799 |
1.1 |
Other |
|
|
|
|
-140,934 |
-19.6 |
Total enterprise value |
|
|
|
|
871,240 |
120.9 |
Net debt as at 31 December 2017 |
|
|
|
|
-86,047 |
-11.9 |
Cash used in share buy-backs |
|
|
|
|
14,077 |
2.0 |
Other investments |
|
|
|
|
0 |
0.0 |
Minority interest |
|
|
|
|
-15,066 |
-2.1 |
Equity value as at 4/2/2019 |
|
|
|
|
784,204 |
108.8 |
Rounded to |
|
|
|
|
|
109.0 |
Share price on 1/2/2019 |
|
|
|
|
|
99.5 |
Expected share price return |
|
|
|
|
|
9.5% |
Plus: expected dividend yield |
|
|
|
|
|
13.0% |
Total implied one-year return |
|
|
|
|
|
22.5% |
Share price range, RUB: |
|
|
|
|
|
|
12-month high on 1/10/2018 |
107.9 |
12-month low on 6/2/2018 |
80.4 |
|||
Price move since high |
-7.8% |
Price move since low |
|
23.7% |
||
Calculation of discount rate |
|
|
|
|
|
|
WACC |
13.7% |
Cost of debt |
|
|
5.0% |
|
Risk-free rate |
7.0% |
Tax rate |
|
|
20% |
|
Equity risk premium |
6.0% |
After-tax cost of debt |
|
4.0% |
||
Beta |
1.30 |
Debt weighting |
|
10% |
||
Cost of equity |
14.8% |
Terminal growth rate |
|
4.0% |
||
Valuation ratios |
|
|
|
|
|
|
Dec-YE |
2016 |
2017 |
|
2018E |
2019E |
2020E |
P/E multiple |
4.3x |
8.3x |
|
6.7x |
7.6x |
6.9x |
Dividend yield |
2.7% |
10.3% |
|
17.7% |
12.6% |
13.6% |
EV/(EBITDA+Equity income) |
3.6x |
5.6x |
|
4.4x |
5.0x |
4.5x |
P/B |
2.2x |
2.4x |
|
3.1x |
3.2x |
3.1x |
NAV per share, USc |
52.1 |
62.1 |
|
48.3 |
46.7 |
47.3 |
NAV per share, RUB |
34.9 |
36.2 |
|
30.3 |
31.3 |
32.2 |
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Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
45