- •Contents
- •Revisions to our forecasts, TPs and ratings
- •Investment stance
- •Capital cycle favours rising returns
- •Comfortable balance sheets and supportive dividend potential
- •Value relative to other stocks
- •Yield potential through the cycle
- •Mid-cycle cash generation offers supportive yields
- •Where to hide if you are bearish
- •What to buy if you are bullish
- •Limited lives weighing down IRR
- •Yields should compensate for limited lives
- •Positive earnings momentum continues to support share prices
- •Commodity price revisions
- •Commodity section
- •Commodity section
- •Preference for base metals over steelmaking materials
- •Earnings revisions
- •Risks and catalysts
- •Peer comp charts
- •Commodity price and exchange rate forecasts
- •Important publications
- •African Rainbow Minerals
- •Alrosa
- •Anglo American
- •Assore
- •Exxaro
- •Glencore
- •Kumba Iron ore
- •NorNickel
- •Rio Tinto
- •Rusal
- •Vale
- •Gold Fields
- •Harmony
- •Polymetal
- •Anglo American Platinum
- •Lonmin
- •Northam
- •Royal Bafokeng Platinum
- •Sasol
- •Disclosures appendix
vk.com/id446425943
Alrosa – BUY
Renaissance Capital
1 April 2019
Metals & Mining
Figure 111: Alrosa, RUBmn (unless otherwise noted |
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Alrosa |
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ALRS.MM |
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Target price, RUB: |
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109.0 |
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Market capitalisation, RUBmn: |
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699,044 |
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Share price, RUB: |
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94.3 |
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Enterprise value, RUBmn: |
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776,659 |
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Potential 12-month return: |
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29.9% |
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Dec-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Dec-YE |
2017 |
2018 |
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2019E |
2020E |
2021E |
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Income statement |
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Balance sheet ratios |
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Revenue |
275,381 |
299,645 |
271,705 |
303,683 |
308,625 |
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Gearing (net debt/(net debt+equity) |
24.4% |
21.4% |
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18.5% |
21.6% |
21.4% |
Adjusted EBITDA |
126,890 |
155,972 |
141,404 |
159,858 |
161,424 |
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Net debt/(EBITDA+dividends from associat |
0.7x |
0.4x |
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0.4x |
0.4x |
0.4x |
Adjusted EBIT |
103,098 |
134,330 |
119,415 |
137,258 |
138,456 |
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RoCE |
27.4% |
37.8% |
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36.6% |
42.6% |
42.0% |
EBIT |
99,083 |
127,095 |
119,415 |
137,258 |
138,456 |
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RoIC (after tax) |
17.6% |
28.6% |
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28.6% |
33.3% |
32.8% |
Net interest |
-1,320 |
-15,901 |
-8,819 |
-8,894 |
-8,967 |
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RoE |
30.0% |
35.1% |
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36.3% |
42.7% |
42.9% |
Taxation |
-22,174 |
-24,208 |
-24,331 -28,240 -28,487 |
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Cash flow statement |
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Equity accounted income |
3,027 |
3,418 |
2,572 |
2,692 |
2,706 |
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Net profit for the year |
78,616 |
90,404 |
88,836 |
102,816 |
103,707 |
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Operating cash flow |
100,464 |
120,122 |
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142,033 |
127,332 |
132,610 |
Minority interest in profit |
-1,541 |
-1,187 |
-444 |
-514 |
-519 |
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Capex |
-26,944 |
-27,816 |
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-29,000 |
-26,000 |
-28,000 |
Attributable net profit |
77,075 |
89,217 |
88,392 |
102,302 |
103,189 |
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FCF |
73,520 |
92,306 |
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113,033 101,332 |
104,610 |
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Equity shareholders' cash |
63,014 |
113,423 |
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106,769 |
94,110 |
97,328 |
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Dividends and share buy backs |
-65,706 |
-94,816 |
-94,143 -105,015 |
-98,239 |
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EPS, RUB |
10.47 |
12.29 |
12.26 |
14.19 |
14.31 |
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Surplus (deficit) cash |
-2,692 |
18,607 |
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12,626 |
-10,905 |
-911 |
Thomson Reuters consensus EPS, RUB |
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13.55 |
15.09 |
15.59 |
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DPS declared, RUB |
8.93 |
11.17 |
13.06 |
14.57 |
13.63 |
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Cash flow ratios |
145 |
125 |
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105 |
100 |
100 |
Adjusted EBIT |
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0.17383 |
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Working capital days |
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Cash conversion |
0.8x |
1.3x |
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1.2x |
0.9x |
0.9x |
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Diamonds |
132,879 |
166,201 |
149,410 |
170,348 |
172,080 |
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FCF yield |
10.1% |
12.2% |
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15.4% |
13.6% |
14.0% |
Transportation |
1,298 |
875 |
718 |
796 |
813 |
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Equity shareholders' yield |
9.8% |
16.5% |
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15.7% |
13.8% |
14.3% |
Social infrastructure |
-3,537 |
-3,726 |
-4,135 |
-4,625 |
-4,698 |
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Capex/Adjusted EBITDA |
21.2% |
17.8% |
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20.5% |
16.3% |
17.3% |
Other (SG&A, other expenses) |
-27,542 |
-29,020 |
-26,579 -29,261 |
-29,738 |
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Income statement ratios |
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Valuation |
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EBITDA margin |
46% |
52% |
52% |
53% |
52% |
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SoTP DCF valuation and calculation of target price |
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RUBmn |
RUB/sh |
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EBIT margin |
36% |
42% |
44% |
45% |
45% |
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Diamonds |
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1,017,538 |
141.2 |
EPS growth |
-41% |
17% |
0% |
16% |
1% |
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Transportation |
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8,903 |
1.2 |
Payout ratio |
85% |
91% |
107% |
103% |
95% |
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Other |
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-160,219 |
-22.2 |
Input assumptions |
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Total enterprise value |
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866,222 |
120.2 |
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Net debt as at 31 December 2018 |
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-67,440 |
-9.4 |
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Rough diamond index, $/c |
198 |
202 |
198 |
208 |
215 |
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Cash used in share buy-backs |
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0 |
0.0 |
Alrosa average gem realisations, $/ct |
135.4 |
160.5 |
142.6 |
151.3 |
156.9 |
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Other investments |
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838 |
0.1 |
Gem realisations vs. index prices |
68% |
80% |
72% |
73% |
73% |
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Minority interest |
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-10,175 |
-1.5 |
Alrosa average industrial realisations, $/ct |
7.6 |
8.2 |
5.5 |
5.8 |
6.0 |
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Equity value as at 27/3/2019 |
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789,444 |
109.4 |
Alrosa average realisations, $/ct |
101.0 |
114.0 |
101.5 |
107.6 |
111.6 |
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Rounded to |
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109.0 |
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RUB/$ |
58 |
63 |
67 |
69 |
68 |
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Share price on 26/3/2019 |
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94.3 |
All in cash costs, net of by-products |
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Expected share price return |
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15.6% |
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Plus: expected dividend yield |
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14.2% |
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Estimated required breakeven price, $/c |
148 |
133 |
145 |
148 |
157 |
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Total implied one-year return |
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29.9% |
Production volumes, kct |
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Share price range, RUB: |
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Diamonds |
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12-month high on 1/10/2018 |
107.9 |
12-month low on 10/4/2018 |
80.5 |
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Aikhal division |
13,010 |
11,850 |
9,622 |
8,430 |
7,887 |
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Price move since high |
-12.6% |
Price move since low |
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17.0% |
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Mirny division |
7,231 |
4,196 |
3,908 |
3,655 |
3,569 |
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Udachny division |
3,821 |
3,932 |
6,438 |
8445 |
8395 |
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Calculation of discount rate |
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Nyurba division |
7,713 |
7,721 |
9,060 |
9,737 |
7,804 |
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Severalmaz |
2,642 |
3,590 |
3,851 |
4,198 |
4,773 |
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WACC |
13.0% |
Cost of debt |
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5.0% |
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Almazy Anabara & Nizhne-Lenskoye |
5,197 |
5,420 |
5,091 |
5,071 |
5,010 |
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Risk-free rate |
7.0% |
Tax rate |
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20% |
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Other production |
0 |
-6 |
0 |
-900 |
0 |
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Equity risk premium |
5.4% |
After-tax cost of debt |
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4.0% |
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Total |
39,614 |
36,703 |
37,970 |
38,636 |
37,438 |
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Beta |
1.30 |
Debt weighting |
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10% |
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Sales volumes , kct |
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Cost of equity |
14.0% |
Terminal growth rate |
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4.0% |
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Valuation ratios |
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Gem-quality |
30,100 |
26,400 |
25,900 |
26,600 |
26,445 |
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Industrial |
11,100 |
11,600 |
11,100 |
11,400 |
11,333 |
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Dec-YE |
2017 |
2018 |
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2019E |
2020E |
2021E |
Total |
41,200 |
38,000 |
37,000 |
38,000 |
37,778 |
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P/E multiple |
8.3x |
7.6x |
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7.7x |
6.6x |
6.6x |
Balance sheet |
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Dividend yield |
10.3% |
11.9% |
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13.9% |
15.5% |
14.5% |
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EV/(EBITDA+Equity income) |
5.6x |
4.7x |
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5.1x |
4.6x |
4.5x |
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Net operating assets |
352,534 |
315,017 |
296,685 |
304,928 |
310,840 |
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P/B |
2.4x |
2.8x |
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2.8x |
2.8x |
2.8x |
Equity |
266,825 |
247,616 |
241,865 |
239,152 |
244,102 |
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NAV per share, USc |
62.1 |
54.0 |
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50.3 |
48.4 |
50.2 |
Minority interest |
-338 |
-39 |
5 |
57 |
109 |
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NAV per share, RUB |
36.2 |
33.9 |
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33.6 |
33.2 |
33.9 |
Net debt |
86,047 |
67,440 |
54,814 |
65,719 |
66,630 |
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Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
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