Equity Analysis /
Russia

Nornickel: Norilsk Nickel (O/W) - Fundamentals outweigh tweet-driven market volatility

    Boris Krasnozhenov
    Boris Krasnozhenov

    Head of Research (Managing Director)

    Yulia Tolstykh
    Yulia Tolstykh

    Analyst, Metals & Mining

    Alfa
    11 September 2019
    Published by
    TP upgraded from $28.7/GDR to $31.7/GDR; Overweight (O/W) maintained: We have updated our Nornickel model. Our valuation is based on a 50% DCF and 25% EV/EBITDA of 7.0x and 25% P/E of 10x based on our 2020 forecasts. As the palladium price remains in $1,500/oz territory and nickel has recently hit $18,000/ton supported by nickel ore supply constraints from Indonesia and growing stainless steel production in China, the company’s metal basket performance is becoming a key catalyst for the stock. Norilsk Nickel shares have surged 30% YTD on solid 1H19 results and a palladium price rally, making it a top performing stock in the Russian commodity universe. PGMs contributed 40% of sales revenue in 1H19, while nickel sales contributed 25%. EBITDA is on track to exceed $7bn in 2019, securing a double-digit dividend yield under a 60% EBITDA-based payout ratio that remains unchanged at net debt/EBITDA below 1.8x (0.8x as of 30 June).