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DECEMBER 10, 2018 THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS

Given that current sanctions on Russia from the US, EU and partners are largely based around the developments in Ukraine since 2014, the combined story of the Azov Sea and the Ukrainian election will remain key to watch for the market through 1Q19.

Market overview

While we see meaningful headwinds for global equity markets and GEMs in particular, we stay fairly constructive on Russia. We expect cheap and boring Russian equities to continue outperforming emerging markets, similar to what has happened this year. We set our 2019 year end RTS Index target at 1,400 points. This target may look ambitious given the uninspiring global economic outlook. However, achieving this target would not require much, in our view. We base this forecast on an assumption that implied ERP will come down from the current 10% to 8%. Our bottom up estimate for EPS growth in 2019 is 8% and flat in 2020. This is equivalent to P/E expansion from 5.3 to 6.3. Our base case scenario assumes the status quo continues on international relations and that Brent averages $65/bbl.

As we have already mentioned, the ERP expansion in 2018 has not been driven by fundamental changes. Sanction risks should be priced in on the cost of debt level, while ERP is responsible for equity specific risks like corporate governance and should not react to geopolitical news flow. We treat ERP expansion as a temporary market dislocation caused primarily by a bout of sanction fears in an environment of insufficient domestic demand. Assuming we do not see more significant sanction moves, ERP should tend to compress, supporting valuations.

Implied cost of equity and cost of debt					Implied equity risk premium
20%				12%
18%				10%
16%				8%
14%				6%
12%
10%				4%
8%				2%
6%				0%
Jul ’15 Jan ’16 Jul ’16 Jan ’17		Jul ’17 Jan ’18 Jul ’18			Jul ’15 Jan ’16 Jul ’16 Jan ’17 Jul ’17 Jan ’18 Jul ’18
	Implied cost of equity	Corp bond yield, Cbonds			Source: Sberbank CIB Investment Research

Source: Cbonds, Sberbank CIB Investment Research

Any bigger rerate would require a repricing of cost of debt and can only materialize once the fear of new sanctions has disappeared from investors’ minds. Cost of debt of 7 8% could be considered reasonable in this case, given the 4% inflation target. After all, we saw corporate bond yields approaching 7% just before the April 2018 sanctions announcement. ERP in this case should compress even more, to the historic mean of 5 6%. In this scenario, Russia’s P/E could move up to around 8, or roughly 50% higher than now. While this is not our core scenario, this option is worth considering to gain an idea of the magnitude of upside risk.

It is of course not realistic to forecast with certainty when the US (or the EU and partners) might decide to again shift policy on Russia, be it in a bullish or bearish way for markets. Hence, it makes the most sense to be overweight stocks that can outperform against any geopolitical backdrop.

Exporters give exactly that opportunity, in our view. If the backdrop for international relations does not improve, foreign capital outflows are likely to continue. Moreover, the CBR is bound to resume its FX interventions in January after having taken a pause in September. Adding the FX purchases to ongoing capital outflows should weaken the ruble and benefit exporters.

If, on the other hand, sanction risks materially dissipate, the whole market could see a spectacular rerating, including energy stocks. Of course, the ruble would be likely to appreciate in this scenario,

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THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS DECEMBER 10, 2018

and exporters would underperform in relative terms, but in absolute terms they would do quite well anyway, as a rising tide raises all boats.

Were market concerns that the US will consider more measures to dissipate (either from the simple passage of time or via a policy shift, such as a focus shift to more pressing issues such as Saudi Arabia or China), banks would be best set to perform in an overall improved outlook for the Russian economy and market. The banking sector was beaten down the most in April and August. In fact, banks are now the highest beta sector in an otherwise low beta market, another reason they should outperform if sentiment turns materially more positive.

Sector beta to RTS

Financials

Media/Internet

Metals&Mining

Utilities

Telecoms

Oil&Gas

Transport

Consumer

0.0

0.5

1.0

1.5

2.0

Source: Sberbank CIB Investment Research

Top picks for 2018

█Lukoil. The company’s approach to dividend payouts promises the best dividend yield in the sector, and its commitment to dividends is relatively strong. The management has also indicated that buybacks will accelerate next year. This implies that the total return could improve by around 3 pp (or almost 50%) to 10% (including a 5% dividend yield).

█Novatek. The company has stayed ahead of expectations and has continued to exhibit solid execution on its LNG strategy throughout the year. It launched its Yamal LNG project well ahead of schedule and signed up its first partner in the Arctic LNG 2 project. We expect key catalysts to materialize for the stock next year, such as the announcement of the FID for Arctic LNG 2 and new partners for projects. The first cash flow from Yamal LNG and SeverEnergia could lead to discussion of a higher dividend payout toward the end of the year.

█Norilsk Nickel. The stock is set to deliver a double digit dividend yield next year. On top of this, the company has finally drawn up a growth plan, including for the South Cluster, a project that boasts rather attractive economics. This should help the company solidify its leadership in the global palladium market.

█TCS Bank. TCS Bank amply illustrates the share price fundamentals dichotomy, with almost 40% EPS growth expected and 60% ROE in 2018 but a share price that has been dragged down with other Russian banks. We think another year of 20%+ EPS growth looks likely, while the overall build out of the ecosystem (8 mln customers) and non credit card businesses are progressing well.

█InterRAO UES. The company’s combination of strong financial indicators and cheap valuation (a current EV/EBITDA of 1.4, or 3.7 if the net cash position and treasury stake are not accounted for) makes it an attractive investment opportunity. For the upside to materialize in this classic deep value story, the market will need to see the company start using the cash it has accumulated, either via major M&A deals or dividend distributions.

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█Yandex. Although we strategically prefer exporters and are wary of tech in the wider global macro environment, we like Yandex as it is in its best ever fundamental shape given improved visibility over the profitability of the taxi segment (which could make the plans for an IPO more viable) and the monetization of new verticals, including Zen, Yandex.Auto and Yandex.Station. We think the market should slowly but surely start to price in these factors.

█Mail.ru Group. In general, we strategically prefer exporters. But within domestics, Mail.ru Group’s outlook for ad and gaming revenues remains solid, and there are a number of positive catalysts that we expect in 2019, including the closing of the AliExpress Russia JV deal and the crystallization of the value of the O2O businesses.

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THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS DECEMBER 10, 2018

STRATEGY SUMMARY
Sector performance																												RTS Index relative to peers, Dec ’17 = 100
Gas																			7%							20%	120
Oil															1%										19%
Russia Exporters																3%					9%						110
RTS								2%									5%
Steel								7%																			100
								2%														9%
Precious metals								3%
Media and IT								4%
								6%																			90
Real estate		20%						4%
Telecoms		20%						0%								1%											80
Fertilizers		21%
																												Dec ’17 Feb ’18		Apr ’18 Jun ’18	Aug ’18 Oct ’18 Dec ’18
Transport		22%						6%
																							11%						RTS Index	Relative to MSCI EM	Relative to MSCI World
Base metals		23%
																		5%
Russia Domestics
		25%																										Source: Sberbank CIB Investment Research
																				8%
Banks		26%
Utilities		28%						1%
Consumer 38%								3%
40%		20%						0%																20%
							3m																YTD
Source: Bloomberg, Sberbank CIB Investment Research

Russian sectors’ 2018E P/E as % of GEM peers																		Forward P/E
Media and IT																			20
Real estate
Oil																			15
Gas
Telecoms																			10
Steel
Banks
Base metals																			5
Retail
Russia
Transport																			0
Utilities
																			2005		2007		2009	2011		2013	2015	2017
0%		20%		40%		60%				80%		100%		120%
																				Russia			EM		DM		Russia excl. oil and gas
Source: Bloomberg, Sberbank CIB Investment Research
																		Source: Thomson Reuters, Sberbank CIB Investment Research
Sector valuation ratios
				MCap							P/E					EV/EBITDA						EPS growth			P/BV	Div yield		Net debt/EBITDA
							ADT
				$ mln		$ mln				2018E		2019E				2018E			2019E			2018E	2019E		2018E		2018E	2018E
Financials		84,484				364				4.9				4.6			–			–		1%	5%		1.1		8.8%	–
Oil		202,655				281				5.9				5.5		3.6			3.4			47%	6%		0.7		6.8%	56%
Gas		108,516				165				5.0				4.3		3.9			3.8			43%	20%		0.5		3.8%	102%
Media		23,693				147				23.9		17.9				13.6			9.7			14%	33%		3.3		0.0%	226%
Base metals		37,132				63				5.3				4.8		5.4			4.8			66%	8%		2.8	11.6%		220%
Precious metals		25,862				63				9.1				7.8		6.2			5.5			9%	12%		1.8		5.5%	123%
Steel		43,127				60				6.4				7.7		4.1			4.6			32%	16%		2.1	12.3%		56%
Telecoms		20,721				45				9.6				8.6		3.3			3.1			76%	11%		1.2		8.3%	140%
Consumer		19,502				36				11.2		10.7				5.6			5.2			1%	7%		1.7		4.2%	156%
Utilities		12,800				16				2.8				3.1		3.1			3.3			12%	9%		0.2		8.6%	143%
Transport				6,079		15				7.4				5.8		5.2			4.3			16%	31%		1.9		6.8%	156%
Other		21,840				13				5.0				4.5		2.7			2.3			23%	12%		0.5		4.7%	81%
Fertilizers		11,638				6				6.1				6.3		5.4			5.2			25%	5%		2.4		4.7%	206%
Real Estate				5,419		2				5.7				5.7		4.2			4.3			72%	5%		1.2		9.0%	70%
Russia		618,152				1,274				5.8				5.4		4.0			3.8			30%	8%		0.8		6.8%	94%
Russia Domestics		179,445				580				5.8				5.4		3.7			3.5			4%	6%		0.8		7.0%	118%
Russia Exporters		438,707				694				5.8				5.4		4.0			3.9			44%	8%		0.8		6.7%	87%
EM				–				–		11.0				9.9		6.5			5.9			18%	11%		1.4		3.6%	109%
DM				–				–		15.5		14.4				9.7			8.9			14%	9%		2.2		2.7%	150%

Source: Bloomberg, Sberbank CIB Investment Research

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STOCK SUMMARY

Top performers, Q o Q

Polymetal																							21%
Polyus																				16%
Mail.ru Group																				16%
Norilsk Nickel																	14%
Gazprom																12%
X5 Retail Group																12%
Sberbank														11%
Sberbank pref										9%
QIWI							7%
Lukoil				6%
Raspadskaya																										29%
																								22%
Transneft pref
Bashneft pref															11%
Raven Russia													10%
RosSeti												10%
Lenenergo pref									9%
Gazprom Neft								9%
Unipro						7%
Bank of St Petersburg					7%
Rusagro				7%
0%		5%		10%												15%				20%			25%		30%

Source: Bloomberg

Highest dividend yields

NLMK																			14.9%
Severstal																		13.1%
MTS																12.5%
RusHydro															12.5%
MMK															11.9%
Norilsk Nickel															11.8%
VEON													11.4%
Surgutneftegaz pref											10.0%
Moscow Exchange										9.6%
VTB									9.6%
Bashneft																				16.8%
Enel Russia																	12.6%
Federal Grid Company													11.0%
Globaltrans												10.7%
Gazprom Neft								9.2%
Unipro							8.6%
Rostelecom						7.5%
Detsky Mir					7.2%
O`Key				6.7%
PhosAgro				6.5%
0%			5%	10%											15%					20%

Source: Sberbank CIB Investment Research

Biggest underperformers, Q o Q

TCS	5%
Yandex	5%
VEON	6%
Severstal	7%
Tatneft	9%
EPAM Systems	10%
Evraz	13%
Magnit	15%
RusHydro	16%
Luxoft 29%
Global Ports	3%
PIK Group	3%
LSR Group	4%
Mechel	5%
Mosenergo	5%
Petropavlovsk	10%
O`Key	12%
Globaltrans	15%
Lenta	17%
TMK	21%

30% 25% 20% 15% 10% 5% 0%

Source: Bloomberg

Lowest and highest P/BV

Polyus												7.9
Norilsk Nickel										6.4
EPAM Systems									5.9
TCS							4.7
Yandex							4.4
Severstal					3.5
Novatek				3.3
MTS				3.3
PIK Group				3.2
Evraz				3.0
Sistema	0.6
Rostelecom	0.6
Obuv Rossii	0.5
Transneft pref	0.5
Bank of St Petersburg	0.3
RusHydro	0.3
Gazprom	0.3
Surgutneftegaz	0.3
Federal Grid Company	0.2
Rosseti	0.1
0	2			4			6		8			10

Source: Sberbank CIB Investment Research

Major upgrades this quarter

	Recommendation		Target price, $		Change
	From	To	From	To	in TP
Aeroflot	SELL	HOLD	1.61	1.56	3%
Enel Russia	HOLD	BUY	0.0255	0.0206	19%
Polyus	BUY	BUY	38.53	44.00	14%
Polymetal	HOLD	HOLD	9.64	10.60	10%

Source: Sberbank CIB Investment Research

Major downgrades this quarter

		Rec	Target price, $		Change
	From	To	From	To	in TP
Lenta	BUY	BUY	8.00	5.50	31%
O`Key	SELL	SELL	2.10	1.50	29%
Obuv Rossii	BUY	BUY	2.85	2.09	27%
Luxoft	BUY	BUY	61.89	47.68	23%
VTB	HOLD	HOLD	2.00	1.60	20%
X5 Retail Group	BUY	BUY	38.00	31.00	18%
Magnit	HOLD	HOLD	20.00	17.00	15%

Source: Sberbank CIB Investment Research

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THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS DECEMBER 10, 2018

Oil and Gas: Keep “Maneuvering” the

Macro Tailwinds

KEY DEVELOPMENTS

The Russian energy sector has gained 17% this year, outperforming the MSCI EM Energy Index by 10% and Brent by circa 30%. Brent had been rising steadily for most of the year, peaking at $86/bbl in October (up around 30% YTD). However, since then it has dropped back to a low of $59/bbl (down 12% YTD).

As we had anticipated, Novatek has been the best performer this year, up 42% YTD. The call we made in February and reiterated in July returned 25% versus the sector YTD. Novatek is followed by Tatneft commons, Gazprom Neft and Lukoil, which saw 26 28% gains. All of these names have substantially improved their distribution of cash flow to shareholders. Transneft prefs, Surgutneftegaz and Bashneft commons lagged the sector.

STRATEGIC VIEW

The sector demonstrated solid improvement in its financial performance this year on the back of the oil price recovery and the still weak ruble. Current market conditions and the macro outlook suggest a still relatively favorable outlook for Russian oil and gas producers, with the oil price in ruble terms almost flat y o y despite the recent correction. That said, our preference in the sector is for the names where we can still see further material improvement in the payout to shareholders.

The so called “tax maneuver” approved for the oil sector in 2019 24 replaces downstream export duty related subsidies with a direct recoverable excise. The impact on the integrated oil companies would seem to be fairly limited at first glance. However, the domestic product market, a big part of their business, will effectively become regulated. This is not something that has been fully acknowledged by the market, but the effects could become visible if oil prices move significantly from the current levels. We expect the oil companies to be more careful in budgeting for their downstream projects and focus more on greenfield opportunities in the upstream, where the government could be more generous with tax incentives.

TOP PICKS

█Lukoil. The company’s approach to dividend payouts promises the best dividend yield in the sector, and its commitment to dividends is relatively strong. Although the dividend is unlikely to increase by more than 10% y o y on a per share basis, the management has indicated that buybacks will accelerate next year. This implies that the total return could improve by around 3 pp (or almost 50%) to 10% (including a 5% dividend yield).

█Novatek. The company stayed ahead of expectations and continued to exhibit solid execution on its LNG strategy throughout the year. It launched its Yamal LNG project well ahead of schedule and signed up its first partner in the Arctic LNG 2 project. We expect key catalysts to materialize for the stock next year, such as the announcement of the FID for Arctic LNG 2 and new partners for projects. The first cash flow from Yamal LNG and SeverEnergia could lead to discussion of a higher dividend payout toward the end of the year.

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OIL AND GAS
Performance																																Sector performance versus peers and RTS
Novatek		9%										1%																42%		140
Tatneft																											28%			130
Gazprom Neft																	9%
																										28%
Lukoil		2%													6%										26%					120
Rosneft																								24%						110
		4%
Tatneft pref																						19%
Bashneft pref																		11%
																					17%									100
Russian oil and gas													4%
																					17%
Surgutneftegaz pref														4%							15%									90
MSCI EM Energy											0%																					Dec ’17 Feb ’18		Apr ’18 Jun ’18 Aug ’18 Oct ’18 Dec ’18
																7%
Gazprom																			12%													Russian oil and gas		Relative to MSCI World Energy	Relative to RTS
																6%
MSCI World Energy		12%
		9%																														Source: Sberbank CIB Investment Research
Surgutneftegaz		16%			2%																		22%
Transneft pref		16%
Bashneft	27%		0%
	40%	20% 0% 20% 40% 60%																												80%
							3m																						YTD

Source: Bloomberg, Sberbank CIB Investment Research

Forward P/E												Oil and gas prices
35										120													12
30
25													90										9
																									$/mmbtu
20													60										6
15
10													30										3
5
0													0											0
2005		2007	2009	2011	2013		2015		2017				2014			2015	2016			2017		2018
		Russia			EM			DM							Brent, $/bbl			Gas, Henry Hub (rhs)				Gas, UK spot (rhs)
Source: Bloomberg, Sberbank CIB Investment Research												Source: Bloomberg
Valuation ratios
			Price	Target price			MCap	ADT			P/E				EPS growth			EV/EBITDA			P/BV	Div yield	Net debt/EBITDA
			$		$		$ mln	$ mln	Rec	2018E			2019E		2018E	2019E		2018E	2019E		2018E	2018E*		2018E
Lukoil			72.92		85.00	62,022		147	BUY	4.9			5.1		47%	4%		3.5	3.3		0.8	4.9%	11%
Gazprom			2.40		3.25	56,868		126	BUY	3.1			2.8		48%	12%		2.9	2.9		0.3	6.1%	113%
Rosneft			6		–	66,784		70	UR	10.9			6.6		150%	18%		5.7	5.1		1.0	6.8%	284%
Novatek			170.10	185.00		51,648		37	BUY	16.3			10.0		18%	64%		12.8	11.6		3.3	1.9%			0%
Tatneft			10.61		10.00	24,242		36	HOLD	8.1			8.3		40%	3%		5.3	5.3		1.7	9.1%	30%
Surgutneftegaz**			0.41		0.50	18,883		23	HOLD	2.9			3.3		83%	13%		neg	neg		0.3	17.5%	659%
Transneft			2,612		3,000	18,552		6	HOLD	5.0			4.5		13%	12%		2.7	2.3		0.5	5.0%	32%
Gazprom Neft			5.41		7.00	25,647		3	BUY	3.8			4.1		55%	2%		3.4	3.8		0.8	8.3%	73%
Bashneft			28.80		45.00		5,076	1	HOLD	3.0			2.7		19%	0%		1.8	1.6		0.7	9.8%	25%
Russia			–		–	329,724		450	–	5.5			5.0		43%	11%		3.7	3.5		0.6	5.7%			70%
EM			–		–		–	–	–	9.2			8.5		60%	9%		4.1	3.7		1.0	4.8%			79%
DM			–		–		–	–	–	12.7			11.0		69%	17%		5.2	4.5		1.4	4.5%			75%

Note: *Dividend yields updated for the factual announcements of interim dividends. **Surgutneftegaz dividend is for preferred shares.

Source: Bloomberg, IBES, Sberbank CIB Investment Research

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THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS DECEMBER 10, 2018

Metals and Mining: Coming off a Peak

Year for Earnings

KEY DEVELOPMENTS

Average commodity prices for 2018 look set to come in above the 2017 averages nearly across the board, with silver and platinum being the key exceptions, averaging 7 8% below last year’s levels. As we had expected, steel prices were nicely supported by production restrictions in China and still healthy demand in key markets. Evraz, one of our top picks, has outperformed the whole Russian metals and mining sector, up almost 30% YTD. Copper prices were fairly volatile during the year, responding sharply to escalations in the US/China trade dispute and to signs of a slowdown in the Chinese economy. Nickel and cobalt (metals widely used in the production of batteries for electric vehicles) are both on track to post price averages well above the 2017 levels this year. Gold has been relatively flat versus the beginning of the year, constrained by ongoing monetary policy tightening in the US but supported by heightened geopolitical uncertainty stemming in part from the mounting tensions between the US and China. The diamond market has been in good shape, while Alrosa finally cheered up investors with a meaningful improvement to its dividend policy. As we expected, the phosphate market has been strong thanks to good demand, rising production costs in China (a marginal producer) and a slower than planned ramp up of new capacity in Saudi Arabia and Morocco. In general, we think that sector earnings and cash flows will likely have picked up in 2018, translating into an above 10% dividend yield in most cases.

STRATEGIC VIEW

While average prices in 2018 will be higher than last year’s averages in most cases, the recent market correction has wiped out nearly all of the price growth – spot prices have fallen below the 2017 average levels. Although the recent 90 day truce in the US China trade war brings some relief, Chinese macro data shows that domestic demand is slowing down, which has been primarily reflected in a cooling property market and slower credit growth. Since we think the Chinese government values economic stability over growth, we expect its monetary stimulus to become less and less aggressive (if compared with 2016, for instance), which could eventually result in a slowdown in global commodity demand. Therefore, we believe that prices on steel and most other commodities will decline y o y in 2019, though there may be a few bright spots, such as nickel (supported by the electric vehicle story) and palladium (due to the tight market). Since most Russian metals and mining companies were able to bring their financial leverage to record low levels and have had decent support from the weak ruble, we think that they will be able to continue distributing nearly 100% of free cash flow as dividends. Therefore, the dollar dividend yields in the sector may remain attractive, especially compared with Russian domestic stories.

TOP PICKS

█Norilsk Nickel. As believers in the electric vehicle story, we think nickel sulfide prices should take off at some point. Meanwhile, the company’s commodity basket is fairly diversified, and the prospects of palladium look strong, as there is not enough visible supply to cover the current deficit. Apart from the decent outlook for nickel and palladium prices, Norilsk Nickel has finally drawn up a growth plan, including South Cluster, a project that boasts rather attractive economics. This should help the company solidify its leadership in the global palladium market. As the shareholder agreement is still in place, the company should continue to pay dividends yielding more than 10 12% per year even in years when capex is elevated.

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DECEMBER 10, 2018 THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS

FERROUS METALS
Performance																										Sector performance versus peers and RTS Index
		Evraz				13%												26%								140
		Raspadskaya																	29%
						7%											21%									130
		Russia
						2%
		Severstal				7%																				120
						4%
		NLMK				3%
						8%																				110
		MMK				4%
						8%
		EM				13%
						21%																				100
		DM				18%
						25%
		TMK				22%																				90
						28%
		Ferrexpo		44%												9%										Dec ’17			Feb ’18		Apr ’18	Jun ’18			Aug ’18	Oct ’18 Dec ’18
		Mechel	52%			3%																						Russia			Relative to global steel					Relative to RTS
			60% 40% 20%								0%					20% 40% 60%								80%
																										Source: Bloomberg, Sberbank CIB Investment Research
								3m													YTD
Source: Bloomberg, Sberbank CIB Investment Research
Forward P/E
25
20
15
10
5
0
2005		2007	2009			2011					2013					2015						2017
		Russia								EM												DM
Source: Bloomberg, Sberbank CIB Investment Research
Valuation ratios
		Price		Target price								MCap					ADT							P/E				EPS growth			EV/EBITDA			P/BV	Div yield	Net debt/EBITDA
			$			$						$ mln				$ mln						Rec		2018E 2019E			2018E		2019E		2018E 2019E			2018E	2018E	2018E
Evraz		5.79				8.05					8,221					19.4						HOLD		5.3		7.8	35%		32%		3.4	4.3		3.0	7.5%	96%
Severstal		14.69				19.06					12,306					19.1						HOLD		7.3		8.0	23%		9%		4.5	4.8		3.5	13.1%	40%
NLMK		23.54				29.77					14,108					12.6						HOLD		6.7		8.0	45%		16%		4.5	5.3		1.9	14.9%	6%
MMK		8.92				10.84					7,667					8.2						HOLD		6.7		7.8	14%		14%		3.6	4.0		1.3	11.9%	5%
Russia			–					–			43,127					59.7						–		6.4		7.7	32%		16%		4.1	4.6		2.1	12.3%	56%
EM			–					–						–						–		–		6.9		6.8	31%		1%		4.6	4.4		0.9	6.5%	170%
DM			–					–						–						–		–		6.1		6.7	32%		8%		4.5	4.4		0.7	2.6%	159%

Source: Bloomberg, Sberbank CIB Investment Research

20	SBERBANK CIB INVESTMENT RESEARCH

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THE RUSSIAN EAGLE – 2019 STRATEGY: STANDING AGAINST THE HEADWINDS DECEMBER 10, 2018

NON FERROUS METALS
Performance																										Sector performance versus peers and RTS Index
ALROSA														1%						14%					120
Acron															2%
																2%					14%				110
Norilsk Nickel
													1%										16%
Polyus		7%																							100
PhosAgro		2%
		13%																							90
DM		11%
		15%
EM		6%
		19%																						21%	80
Polymetal
		20%
																			10%
Russia		20%																							70
Petropavlovsk		13%																								Dec ’17 Feb ’18 Apr ’18		Jun ’18 Aug ’18	Oct ’18 Dec ’18
		25%																				15%
KAZ Minerals	42%																										Russian non ferrous	Relative to global	Relative to RTS
	60%	40% 20%										0%							20% 40%							Source: Bloomberg, Sberbank CIB Investment Research
					3m														YTD
Source: Bloomberg, Sberbank CIB Investment Research

Forward P/E											Base metal prices
20										30,000												3,000
15										25,000												2,500
										20,000												2,000
10										15,000												1,500
5										10,000												1,000
										5,000												500
0												0											0
2005		2007	2009	2011	2013	2015	2017					2010 2011 2012 2013 2014 2015 2016 2017 2018
		Russia			EM		DM							Nickel, $/tonne							Copper, $/tonne
Source: Bloomberg, Sberbank CIB Investment Research														Aluminum,$/tonne (rhs)							Gold, $/oz (rhs)
											Source: Bloomberg
Valuation ratios
			Price Target price		MCap	ADT			P/E				EPS growth				EV/EBITDA			P/BV	Div yield	Net debt/EBITDA
			$	$	$ mln	$ mln	Rec		2018E	2019E			2018E		2019E		2018E	2019E		2018E	2018E		2018E
Norilsk Nickel			18.84	22.20	29,813	60.8	BUY		8.0	7.5			75%		7%		6.4	6.0		6.4	11.8%	127%
Polymetal			10.01	10.60	4,563	35.9	HOLD		11.4	8.0			4%		43%		7.9	5.9		2.9	4.0%	199%
ALROSA			1.48	1.59	10,928	20.1	BUY		7.8	8.7			3%		10%		4.9	5.0		2.0	6.3%	10%
Polyus			35.55	44.00	9,496	6.3	BUY		8.1	6.5			18%		26%		7.0	5.5		7.9	5.8%	172%
PhosAgro			13.32	16.66	5,175	5.0	BUY		7.7	8.3			76%		7%		5.7	5.7		2.4	6.5%	150%
Russia			–	–	63,703	112.2	–		6.1	5.5			49%		9%		5.7	5.1		2.4	8.8%	216%
EM			–	–	–	–	–		9.8	9.0			28%		5%		6.0	5.5		1.6	4.7%	124%
DM			–	–	–	–	–		13.7	13.3			7%		4%		7.0	6.7		1.8	3.6%	106%

Source: Bloomberg, Sberbank CIB Investment Research

SBERBANK CIB INVESTMENT RESEARCH

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