Rusal - 1Q19 Trading Update Review and Earnings Preview
Rusal has posted a weak 1Q19 trading update, as expected. There was only a minor pickup in sales volumes, inventory accumulated further and prices were weak. We expect 1Q19 EBITDA to be down 37% Q-o-Q to $230 mln, for a 10% margin, while leveraged FCF should be negative. As the results were impacted by the extensions of the OFAC licenses in December-January, we expect to see some recovery in 2Q19, mainly in terms of FCF (thanks to a normalization of working capital). At spot commodity prices and the current USD/RUB rate, Rusal is trading at a 2019E adjusted EV/EBITDA (including the Nornickel dividends paid in 2019) of around 5.5 and a 13% leveraged FCF yield (excluding the guided one-off working capital release of around $600-900 mln in 2019). As we expect a recovery in Rusal's financial performance in the following quarters, we keep our estimates and recommendation unchanged.
United Company Rusal is a producer of aluminium and alloys. Co.'s production chain include bauxite and nepheline ore mines, alumina refineries, aluminium smelters and casting houses, foil mills and packaging production centres. Co. operates in four reportable segments: Aluminium, which is involved in the production and sale of primary aluminium; Alumina, which involved in the mining and refining of bauxite into alumina and the sale of alumina; Energy, which include the mining and sale of coal and the generation and transmission of electricity; Mining and Metals, which includes the equity investment in Co.'s joint venture, PJSC MMC Norilsk Nickel.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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