Equity Analysis /
Russia

Alrosa: 1Q21 trading update: diamond sales up 65% y/y – POSITIVE

  • ALROSA (ALRS: RX; O/W; TP RUB 118.8/share) reported sales 15.5 mn cts for the first quarter

  • A survey held by MasterCard revealed that US retail sentiment was upbeat and March jewelry sales were +106% y/y

  • The second quarter is traditionally associated with a cooling period for the diamond market post pre-holiday restocking

Boris Krasnozhenov
Boris Krasnozhenov

Head of Research (Managing Director)

Yulia Tolstykh
Yulia Tolstykh

Analyst, Metals & Mining

Alfa
16 April 2021
Published by

ALROSA (ALRS: RX; O/W; TP RUB 118.8/share) reported sales 15.5 mn cts for the first quarter, which represents a six-year high for the first quarter. That drove the company’s inventories to 12.8 mn cts as production remained subdued at 7.5 mn cts, down 6% y/y. That is the lowest level of inventories since the beginning of 2018. As the average realized price for gem-quality diamonds remains well below pre-pandemic levels (it came at $113/ct as of the end of the quarter – up 25% q/q and down 8% y/y) we see a high possibility of future price rises by major producers provided that the main manufacturing region in India (Surat) remains resistant to Covid-19 restrictions and overall positive dynamics in consumer confidence in the retail segment remains in place.

A survey held by MasterCard revealed that US retail sentiment was upbeat and March jewelry sales were +106% y/y. Consumer spending received support from stimulus checks, tax refunds, and return to stores after vaccine rollout. Signet’s 1Q21 forecast for revenue is up by 88% y/y to $1.6bn. LVMH’s 1Q21 jewelry and watch sales grew 138% y/y to $1.8 bn. The wholesale market remains relatively quiet in Hong Kong with the potential to improve as the city plans to relax travel restrictions and potentially reopen the China border crossing.

The second quarter is traditionally associated with a cooling period for the diamond market post pre-holiday restocking. We expect a gradual improvement in travel restrictions to help mitigate seasonal developments. Another catalyst for ALROSA should be the 2020 dividend announcement. We expect less than 100% of 2H20 FCF to be recommended for dividends (80%, by our estimates), which implies a c. 9% yield (around RUB10/share).