Norilsk Nickel: Don’t beliEVe the hype (HOLD - reinitiation of coverage)

Despite our positive view on the metals basket in the next five years, the stock is fully valued on our base-case and on spot metals prices. While we expect the balance between RUSAL and Potanin to be unchanged by the sale of Abramovich’s 4% stake, there are various scenarios in which the minority shareholders could lose out from a deterioration in the relations between RUSAL and Potanin, in our view. Regardless of ownership, we believe Norilsk’s dividend policy requires reform. Without it, we would expect further balance sheet deterioration in 2019-22E, when the capex increases, so Norilsk is likely to reduce its payout, potentially this year, in our view. We believe RUSAL is in a stronger financial position now than in 2012 to accept a less generous dividend policy but, without an agreement, there is a risk that the shareholder conflict could reignite. While we believe a buyout of Potanin by RUSAL, or vice versa, is unlikely and has been overhyped in the press, this could materially change Norilsk’s strategic direction. As a result, we reinitiate on Norilsk with a HOLD rating and a USD 20.2/GDR price target (PT).