RUSAL: Reassured by Capacity Cuts – Target Price Increase
RUSAL shares have gained 40% since our initiation of coverage in June, and we increase our target price to HKD6.8/share reiterating our BUY rating. We raise our aluminium price forecasts by $50/t, as we have more confidence regarding China’s capacity curb progress, and we now expect the global metal deficit to exceed 1mt vs 0.8mt previously. We also incorporate strong 1H17 financials into our model and boost our FY17 EBITDA forecast to $2.1bn (consensus 2.0bn). We see deleveraging continuing, and believe that potential MSCI inclusion would be a strong trigger for the stock in the mid-term. Today we upgraded Norilsk Nickel to BUY that has positive read-across for RUSAL, which owns 27.8% in the nickel producer.
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