Alrosa: Diamonds are an investor’s best friend (BUY - initiation of coverage)
Today, we initiate on Alrosa with a BUY recommendation and a price target (PT) of RUB 98.4/share. Alrosa generates industry-leading margins and cash flows. After recent improvements in its dividend policy, Alrosa now pays out close to 100% of its FCF as dividends and should pay a dividend yield of 11.2% in 2020E, on our estimates. We expect dividends to rise in the medium term, as we expect a gradual recovery in the diamond market and moderating capex to boost its cash flow further. A diamond market recovery was already under way in late-2019, driven by the end of the significant midstream destocking we observed for most of 2019. We believe this is likely to be delayed due to the near-term impact of the coronavirus on demand, but it should not derail the longer-term recovery in diamond prices. We would therefore use any near-term price weakness to BUY the stock.AK Alrosa PAO. AK Alrosa PAO (Aktsionernaya kompaniya ALROSA PAO or ALROSA Company PJSC), formerly AK Alrosa OAO, is a Russia-based company which is principally engaged in the exploration, mining, manufacture and sales of diamonds. Its operations include five Integrated Mining and Processing Complexes: Mirny, Udachny, Aikhal, Anabar and Nyurba located in the Sakha Republic; sorting divisions and diamond cutting and polishing division. The Company is a member of variable diamonds associations. It operates through several representative offices, branches and subsidiaries, including Alrosa-Nyurba OAO, Almazy Anabara OAO and Severalmaz OAO.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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