ALROSA: Cheap Valuation Insufficient – Downgrade to HOLD
We downgrade ALROSA to HOLD, cutting our target price to RUB85/share. We believe that its cheap valuation (4.4x 2017 EBITDA) alone is insufficient to offset the polishing industry’s challenges, and uncertainty regarding the Mir mine and its $15bn of reserves. We see no strong catalysts, while subdued sales in September and October, as per ALROSA’s guidance, can only be partially explained by an early Diwali, in our view. Jewellery demand is showing signs of a modest recovery, but without conviction since polished diamond prices continue to fall. Lastly, the looming diamond reform in Russia may lead to adverse regulations for ALROSA. The stock may return to the radar in December on seasonally stronger demand, and the disclosure of its mid-term development plans.
Since its inception in 1991, ATON has built a reputation for combining in-depth local knowledge of the Russian market with the highest international standards in research, sales and trade execution. As a result, we have been able to attract many of the leading domestic and international institutional fund management groups as our clients. As one of the leading independent investment banks in Russia, we offer the full range of institutional brokerage service, including:
- Detailed fundamental analysis of economics, sectors and companies, with the widest coverage universe in Russia and the CIS;
- Timely trading ideas to help clients take advantage from short-term pricing discrepancies;
- Competitive prices and prompt execution of trades;
- An on-line platform providing easy access to all our research products and tools.
- Client-focused Service
- We employ state-of-the art technology to ensure the highest quality of investment services as well as the highest level of data protection.
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