Alrosa: 1Q21 IFRS review – EBITDA slightly below estimates, positive surprise on FCF
- ALROSA released its first quarter IFRS results which marked a continued increase in demand for diamond jewelry
- Free cash flow for the quarter delivered a positive surprise and came in at RUB 52.7 bn, which is materially higher y/y
- Management communicated a positive outlook towards the end of the year and reiterated FY21 production guidance
ALROSA (ALRS RX, O/W, RUB 118.8/share) released its first quarter IFRS results which marked a continued increase in demand for diamond jewelry. The top line reached RUB 90.8 bn, down 8% q/q, reflecting lower sales which was partially offset by a better sales mix that resulted in growth of the average realized price. EBITDA came slightly below market assumptions at RUB 33.5 bn. This came above our in-house projection as the company reported lower SG&A expenses and other operating income. Quarterly EBITDA delivered a 5% q/q and 12% y/y increase.
Free cash flow for the quarter delivered a positive surprise and came in at RUB 52.7 bn, which is materially higher y/y. The quarterly reduction in FCF reflects working capital developments. The 4Q20 working capital release was higher than that of a 1Q21. As of the end of the quarter net debt/EBITDA dropped to negative 0.2x, reflecting the company’s strong financial position. The low leverage allows the company to recommend a dividend payout of 100% FCF. ALROSA’s BoD has already recommended a final 2020 dividend of RUB 70.3bn. If the company pays 100% of 1H21e FCF, and we assume 2Q21e FCF of around RUB 30bn on excluding the working capital release, the LTM (2H20-1H21e) total dividends may reach RUB 150bn, reflecting a c.18% dividend yield.
Management communicated a positive outlook towards the end of the year and reiterated FY21 production guidance of 31.5 mn cts. It is noted that global diamond supply is still 20% below the pre-Covid levels and the production is unlikely to bounce back in the medium term. Demand is expected to be driven by both pent-up demand, improved consumer confidence, and growth in savings due to lower spending on experiential luxury items. We expect the average realized price for gem quality diamonds to increase from $113/ct reported in 1Q21. Our in-house assumption is $135/ct for 2021. The Covid pandemic implies greater risk for trading than the manufacturing of diamonds, in our view, which should have a less pronounced negative effect on rough diamond sales considering on-line sales penetration in the supply chain.
The company is scheduled to hold the conference call todat, 18 May at 10 am (New York), 5 pm (Moscow). Dial-in details: +49 692 2222 54 29 (International); +1 844 286 0643 (Free Call USA); 0800 376 61 83 (free Call UK); +7 800 500 9863 (free Call Russia). Conference ID: 23143767#
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The contents of this document have been prepared by Joint Stock Company “Alfa-Bank” ("Alfa Bank") as Investment Research within the meaning of Article 36 of Commission Delegated Regulation (EU) 2017/5...