Polymetal - Tactical Trade Idea: Buy Polymetal

We continue to see a nice backdrop for gold stocks, as real yields remain low, while the turbulent geopolitical landscape amid the US-China standoff and the persistent threat of Covid-19 have supported safe-haven demand. Otkritie FC Bank's sale of its remaining stake in Polymetal has significantly reduced the overhang risk that had been weighing on the stock for some time. We thus open a trade idea to buy Polymetal.> This week, Otkritie FC Bank sold its remaining stake in Polymetal in one large transaction ($400 mln for the 3.4% stake - see our daily comment). Since Alexander Mamut and Nikolai Mamut also both recently reduced their stakes to below the reporting threshold of 3%, the only remaining disclosed sizable financial investor is PPF, which has a 3.8% stake. We believe that the stock overhang risk has decreased materially, while liquidity has significantly improved.> Polymetal recently enhanced its dividend policy. Now, instead of paying out special dividends, it modifies the final dividend payout. While the base payout remains 50% of adjusted net income, the final dividend can now be increased at the BoD's discretion so that the total payment for the year equals full-year FCF. In recent years, Polymetal has generally paid out all of its FCF, but this was done via special dividends. The amendment to the dividend policy thus increases the predictability of dividends.> In August-September, Polymetal has started to catch up with Polyus and global senior gold miners after months of underperformance amid a slew of share placements and expectations of more to come. At the spot gold price and USD/RUB rate, the stock is still trading at a discount to its peers on EV/EBITDA (6.4 for 2021E, a 20% discount to Polyus) and at an attractive FCF yield (9% for 2021E). Its dividend yield is the highest among the leading global gold producers - 7% on dividends to be paid in 2021. We reiterate our BUY recommendation and open a trade idea to buy Polymetal stock.