Equity Analysis /
Russia

Alrosa: ALROSA (O/W) - Though winds may blow, diamonds are forever

    Boris Krasnozhenov
    Boris Krasnozhenov

    Head of Research (Managing Director)

    Yulia Tolstykh
    Yulia Tolstykh

    Analyst, Metals & Mining

    Alfa
    9 September 2019
    Published by
    TP downgraded from RUB129/sh to RUB87.8/sh; Overweight (O/W) rating reiterated: We have updated our ALROSA model, basing our valuation on a 33% DCF and 33% oneyear forward EV/EBITDA of 5.0x and 33% P/E of 8x. The model reflects the downward trend in the polished diamond index and the conservative outlook for a recovery in diamond sales in the coming years. As the market faces an inventory build-up and short-term credit shortage for working capital financing across the diamond value chain, ALROSA has lowered its sales forecast for 2019E to 32mn carats while increasing its production target to 38.5mn carats. We have not seen major spikes in sales driven by restocking since March 2018, while ALROSA generated the lowest sales revenue in three years in July 2019. We see two upcoming catalysts for the stock: (1) an updated strategy, which will be presented during its CMD in 1Q20, particularly cost optimization; (2) Sept-Nov rough diamond sales ahead of the holiday jewellery season which are going to be crucial for industry sentiment.