WOOD Flash – Norilsk Nickel: 3Q18 production results – on track to meet guidance
Norilsk has just announced its 3Q18 production results. Production of all metals from its Russian operations remain on track to meet its guidance, in our view, and management reiterated the production guidance for 2018E from Russian feed. The 9M18 nickel production was flat yoy, but copper and PGMs all demonstrated growth. Despite our HOLD rating, we see some upside to our USD 20.2/GDR price target at current levels, and its metal basket (we are long-term bullish on copper, nickel and palladium) and the potential growth optionality of the South Cluster could add to the equity story, in our view. The dividend policy remains supportive of double-digit dividend yields as long as the policy stays in place. However, we are concerned about the potential for higher capex to result in rising net debt without dividend reform, and the greater risk of sanctions in Russia arguably justifies a higher cost of capital than the 11% WACC we use currently. As a result, there may be a better entry point for the stock than today.
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.
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