reports
- Kirill Chuyko
BCS Best Picks: Trade Ideas Monitor
In August, our Best Picks generated a -1% relative (v RTS) and absolute return (in USD). IRAO, the new addition to the basket, delivered a c4% gain in less than a week, more to come. - We merged 3 baskets into one, limiting max weight to 25% per stock - Portfolio reshuffle: 5 longs and RUAL v GMKN out; IRAO in - Absolute/relative return: -1%/-1% in August, +19%/+6% in 12 months - Top performer: IRAO – Undervalued, but fundamentally strong - For September, we expect IRAO and LKOD to keep powe...
- Maria Radchenko
- Yuri Golban
BCS Desk Note: Sovcomflot – Excessive premium to Sov curve: Buy
We recommend increasing positions in SCFRU 23 (YTM 4.03%, z-spread 264bp), which lagged the recent rally and offers the highest premium to the Russian Sovereign curve amid quasi-sovereign corporate issues. - Russia’s largest shipping company, 100%-owned by Russian Govt, … … privatization and sanction risks are low - Fitch rating upgrade possible: Rating cap is one notch below Russian Sov o Upside increased after Russia Sovereign rating was upgraded 9 Aug - Credit profile no concern – ...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Trade Ideas Closed: Long UC Rusal & vs Norilsk – Rusal rerating ...
We close our Long UC Rusal and UC Rusal v Norilsk Nickel Trade Ideas (opened 4 Feb) due to a deteriorating backdrop and the absence of S-T triggers. - Long Rusal generated -16% return vs RTS, -4% US$ absolute return - Rusal v Norilsk Nickel idea resulted in a 22% loss - Since opening the Trades, Rusal has suffered a deteriorating environment: o Aluminum prices have declined 5.5% since opening the Trade (4 Feb) o CNY devaluation increases competition o Rusal offers pessimistic guidance ...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Trade Idea Closed: Long Polyus – Key trigger delivered, priced i...
We close our Long Polyus Trade Idea on strong 2Q19 IFRS results and a 14% surge in gold prices since opening the idea (6 March). - Trade generated 22% relative to RTS and 36% absolute return in US$ - Gold prices surged 14% on global economic uncertainty - 2Q19 IFRS: Record quarterly EBITDA; Priced in, not easily replicated - Still L-T attractive… … as a bet on further rise in gold prices due to geopolitical risks - Valuation: Polyus trades at M2M P/E of 6.9x – close to fair in our vi...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Preview: Steel 2Q/1H19 IFRS – FCF under pressure
Next week, 2Q/1H19 IFRS reporting season starts – we expect Russian steels to report weaker FCF amid generally mixed results. - FCF to face pressure on CapEx, WC build-up, but … ... overall results to be mixed, as domestic steel market adds support - Severstal (19 Jul) – BCSe +14% EBITDA, but +23% CapEx; 2.2% DY - NLMK (26 Jul) – FCF -40% q/q, hit by maintenance, upgrades; 2.0% DY - MMK (31 Jul) – 16% higher EBITDA, but 58% higher CapEx; 1.8% DY - EVRAZ (8 Aug) – Financials ...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Downgrade: Alrosa – Bearish on 2H19 outlook
We downgrade our 12MF TP for Alrosa by 24% to $1.6/share on the back of continuing diamond market weakness, expected through 3Q19. The stock carries just 6% Excess Return – Downgrade to Hold. - June sales down for 3rd consecutive month, lowest since Dec 2016 - Diamond market under pressure through 3Q19 o Alrosa’s sales to fall through 2019 o Demand, prices for large rough stones may also fall - BCSe – 2019 estimates downgraded; No S-T positive triggers - BCS optimistic L-T – Mar...
- Kirill Chuyko
- Vasiliy Mordovtsev
BCS Best Picks: Trade Ideas Monitor
In June, our Best Picks performed well in all available categories. Our Long portfolio shined, beating the market by 2.6% m/m or 12% in $-terms. Our Short portfolio is still empty. - Longs: Wgt’d avg – 2.6% beat in June, +2% in 12 months - Shorts: Our ‘Least Preferred’ basket remains empty - Pairs generated 1.4% m/m, but down by 14% in 12 months - We foresee no major drivers in July – August should be more promising - Key changes in the basket: o Long TCS – S-T relief rally unfol...
- Kirill Chuyko
BCS Catalyst Watch – 3Q19
BCS Catalyst Watch is a quarterly publication, geared to providing advance notification of key corporate and macro-level events, insight into key issues and guidance on what to watch. Mark Bradford, Director, Head of production, Kirill Chuyko, Managing Director, Head of Research, For more details, please contact: Oleg Achkasov ( / / ) Luis Saenz ( / / 23)
- Maria Radchenko
- Yuri Golban
BCS Placement Preview: GeoProMining – High risk not compensated by c...
GeoProMining (S&P: B+), a miner with core assets in Armenia (B1/NR/B+), is placing a debut $300mn 5Y Eurobonds placement with 8.0% coupon guidance, which we view as unattractive given high risk.  Small-sized, gold-focused miner with limited growth prospects  First gold producer that uses ALBION technology – 87-88% gold recovery  Legal structure of Eurobonds placement looks investor-friendly o Key production assets are guarantors on Eurobond transaction  Majority of core producti...
- Kirill Chuyko
BCS Best Picks: Trade Ideas Monitor
In May, our Best Picks turned in negative performance v RTS, whereas for 6M and 12M our most preferred stocks closed flat. We closed GAZP with a 31% gain in USD. Our least preferred basket is still empty.  Longs: Wgt’d avg of miss – 2% v RTS in May, flat in 12 months  Shorts: Wgt’d avg of beat – Lost 6 ppts over the past year  Pairs added 0.3% in May, still down for the year  Key ideas for June: o Long PLZL – Should benefit from trade war and global recession fears o Lo...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Initial Coverage: KAZ Minerals – A growth story … and underval...
KAZ Minerals is a growth story, enjoying stable copper prices, robust fundamentals, new assets and attractive valuations – offsetting risks. We Initiate Coverage with a Buy and TP of GBP 7.5/sh, implying 19% excess return.  Copper prices supported as market to remain in deficit in 2019, … … albeit Chinese demand – threatened by trade war – to limit upside  Robust fundamentals, new assets to boost performance 2019+ o KAZ Minerals EBITDA to rise 13% in 2022 to $1.25bn from 2018 o ...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Trade Idea Reiterated: Long Polyus – Main Top Pick: Strong 1Q19,...
We reiterate our Long Polyus Trade Idea (opened 6 March) after strong 1Q19 financial performance and confirmation of FY19 production target.  Our main Top Pick – gold prices have strong upside risk on rising volatility  1Q19 IFRS: Strong – EBITDA up 26% y/y, costs and CapEx are low  TCC: $358/oz v guidance of less than $425/oz  2019 production target confirmed at 2.8mn oz  Valuation: M2M P/E highly attractive at 6.1x, 7.0% DY  Return / Duration: Up to 20% / mid-July  Tr...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Trade Idea Reiterated: Rusal Long & v Norilsk – 1Q results irrel...
We reiterate our Trade Ideas Long Rusal and Rusal v Norilsk on recovery in 2Q and attractive valuation. 1Q19 performance was unjustifiably depressed by the continued impact of sanctions, which were lifted at end-Jan.  1Q results: c40% lower EBITDA – fully expected, but stock is down  1Q numbers affected by sanctions – now lifted, so largely irrelevant  Realized prices will gain $140/t when impact of sanctions passes, we think  Valuation: Even on weak 1Q, Rusal has adjusted 4.4x...
- Kirill Chuyko
BCS Best Picks: Trade Ideas Monitor
In April, the performance of our Best Picks improved, closing flat v RTS for the month and beating the market by 3ppts over the past 12 months. After closing Short NLMK, the ‘Least Preferred’ basket is now empty. Pairs are still losing.  Longs: Wgt’d avg of beat – 3% beat v RTS in 12 months, 2% gain in April … Led by YNDX, GAZP, Inter RAO  Shorts: Wgt’d avg of beat – losing 8 ppts over the past year  Pairs lost 3% in April, but we still believe in our Rusal v Norilsk pair...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS MM&F Strategy: Isolating the Best
We upgraded our S-T commodity price forecasts for MM&Fs, but our L-T view for each segment remains unchanged – we favor only the best.  PLZL remains our Top Pick, now also positive on diamonds, ALRS  RUAL added to Most Preferred – strong upside, further rerating expected  Other Buys: TMK becoming a dividend story  Holds: SVST, MMK, POLY, PHOR  Sells: Steel, MNOD, HGM, POG and AKRN  M2M Valuations: Confirm our recommendations Key Changes: Upgrades on all fronts, L-T outloo...
EVR FERREXPO PLC
486 EVRAZ PLC
00486 UNITED CO RUSAL PLC
POG UNITED COMPANY RUSAL INTERNATIONAL PJSC
HGM PETROPAVLOVSK PLC
TIMKEN HIGHLAND GOLD MINING LTD.
NLMK TIMKEN INDIA
CHMF NOVOLIPETSK STEEL
POLY SEVERSTAL PAO
AKRN POLYMETAL INTERNATIONAL PLC
MAGN POLYUS PJSC
GMKN ACRON
ALRS MAGNITOGORSK IRON & STEEL WORKS PJSC
PHOR MMC NORILSK NICKEL PJSC
TRMK ALROSA PJSC
N7MG PHOSAGRO PJSC
SVST TMK PAO
N9E1 NLMK (GDR)
MTL. SEVERSTAL (GDR)
MMK PAO TMK
PLZL MECHEL
NNIC MAGNITOGORSK IRON & STEEL WORKS (GDR)
POLYUS (GDR)
MINING AND METALLURGICAL COMPANY NORILSK NICKEL (GDR)
- Maria Radchenko
BCS Local Bonds Monitor: O’Key – Fair YTP is 9.5-9.6%, lower than ...
We estimate fair YTP for the new O’KEY BO-001R-02 at 9.5-9.6%, lower than guidance, and recommend participating in the placement. Today, OKEY will place no less than Rb5bn 10Y bonds with a 3Y put option. Coupon guidance was set at 9.35-9.55%, which implies YTP of 9.68-9.9%. Fair yield to put at 9.5-9.6%, Coupon – 9.2-9.3%. Similar in terms of duration, Lenta-001R-02BO trades with YTM of 8.8%, offering a 90-100bp premium to the OFZ curve. We think O’KEY’s new 3Y issue should offer a 70...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Trade Idea Reiterated: Long Polyus – Overhang risk gone, MSCI FI...
We reiterate our Long Polyus Trade Idea (opened 6 March) as the main trigger has kicked in – we expect the name to rerate.  SPO placed at $38/GDR, overhang risk gone – #1 driver  Strong fundamentals – Lowest costs, double-digit growth  Weakness due to SPO to be short-lived, MSCI FIF increase – Additional driver  Valuation: M2M P/E highly attractive at 6.2x, 6.5% DY  Return / Duration: Up to 20% / mid-July  Triggers: 1Q19 Trading update (23 Apr); 1Q19 IFRS Results (end...
- Kirill Chuyko
BCS Best Picks: Trade Ideas Monitor
March was not the best month for our Best Picks, but over the past 12 months, on a weighted average, the basket beat the index in Longs. - Longs: Wgt’d avg of beat – 11 ppts LTM, -2 ppts in March - Shorts: Wgt’d avg of beat – -6 ppts LTM, -3.8 ppts in March - Pairs lost 11% LTM and 5.2% in March - Key ideas for April: o Long PLZL – Strong operating results, Fed’s easing o Long RUAL – MSCI inclusion, dividend policy reinstatement o RUAL v MNOD – Fundamentally cheap o...
- Artem Bagdasaryan
- Kirill Chuyko
- Oleg Petropavlovskiy
BCS Trade Idea Closed: Short NLMK – Tactical closure on S-T China PM...
We close our Short NLMK Trade Idea, as macro environment supports high steel prices in S-T. However, steel oversupply risk remains high and we maintain our L-T negative view. - Macro supports: Chinese PMI solid – 50+ for official/Caixin - Iron ore and steel prices stay strong, S-T downside may be limited - But, both markets remain in oversupply and overhang risk is high … … Vale output to recover after recommissioning of stopped mines … Chinese steelmakers will boost production as wi...
- Maria Radchenko
BCS Desk Note: Alrosa – High quality demands tight spreads
Alrosa (Baa2/BBB-/BBB-) will place 5Y USD-denominated Eurobonds this week. We expect strong demand given solid credit metrics, medium duration and low sanctions risks. We anticipate no premium to Gazprom’s (Baa2/BBB-/BBB-) curve. - World’s largest rough diamond producer with 26% market share - Credit profile is very strong o ND/EBITDA 0.4x as of FY18 o With EBITDA margin of 52%, Alrosa leaves its peers behind - Credit ratings were upgraded to IG level in 2019 - Sanctions risks are low...
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