Alrosa - Closing Tactical Short Trade Idea

The Russian state gem repository Gokhran may close a deal to purchase $0.5-1.0 bln in rough diamonds from Alrosa within the next two months, according to Alrosa's head of sales Evgeni Agureev. The deal would support the company's 2020 earnings, which we had previously expected to fall significantly short of the consensus. We thus close our tactical trade idea to short Alrosa versus the RTS.> Evgeni Agureev, Alrosa's head of sales, has said that the company expects to finalize a sale of rough diamonds to Gokhran, the state gem depository, in the next two months (see the story from today's daily). Although the terms of the deal are still being negotiated, Agureev thinks that Gokhran may buy $0.5-1.0 bln worth of rough diamonds. This statement was published in Rapaport magazine last Thursday and highlighted by Kommersant today. We calculate that the deal could increase Alrosa's revenues this year by 20-40% to $2.8-3.3 bln and provide a substantial boost to 2020 EBITDA (by 30-70% to $1.2-1.5 bln, up to 30% above the consensus), as well as FCF and dividends for 2H20.> The news may support the stock in the short term, so we are closing our tactical trade idea to short Alrosa against the RTS. Since we opened the idea on April 1, the stock has massively underperformed the Russian market, generating a 17% total return versus 30% for the RTS.